Wood Group Annual Report 2008

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www.woodgroup.com John Wood Group PLC Annual Report and Accounts 2008 John Wood Group PLC

Contents Wood Group is an international At a glance energy services company. 01 Our vision and strategy We provide a range of 02 Our operating highlights 2008 Redevelopment project 03 Our performance Surface , Norway

well Annual Report and Accounts 2008 engineering, production head 04 What we do inspection , Canada support, maintenance management and industrial Operational review 06 Chairman’s statement gas turbine overhaul & repair 08 Chief Executive’s report Brownfield 20 Engineering & Production Facilities engineering services to the oil & gas, and design Engineering design, Canada , UK 22 Well Support power generation industries 24 Gas Turbine Services worldwide. We have over 26 Financial review 30 Principal risks and uncertainties 28,000 people and operate in 46 countries. Corporate social responsibility 34 Our people 36 Health, Safety and Environment 38 Our business and the community Deepwater engineering design, USA Governance hailand Turbine accessory repair, T 42 Board of directors 44 Report of the directors 45 Corporate governance 49 Directors’ remuneration report olombia Christmas gift donations, C Financial statements Forward looking statements bu habi Group financial statements Surface pumping systems, A D The operational review and certain other sections of this annual report contain forward looking statements that are 58 Independent auditors’ report subject to risk factors associated with, among other things, 60 Consolidated income statement the economic and business circumstances occurring from 61 Consolidated statement of recognised income and expense time to time in the countries and sectors in which the Group 62 Consolidated balance sheet operates. It is believed that the expectations reflected in 63 Consolidated cash flow statement these statements are reasonable but they may be affected 64 Notes to the financial statements by a wide range of variables which could cause actual results to differ materially from those currently anticipated. Company financial statements 106 Independent auditors’ report Subsea systems, Australia 108 Company balance sheet

razil 109 Notes to the company financial statements Operations & maintenance support, B

An online version of the annual report and Additional information accounts 2008 is available at 119 Five year summary www.woodgroup.com/annualreport2008 120 Shareholder information

John Wood Group PLC John Wood House 17420 Katy Freeway Greenwell Road Suite 300 Energy supporting energy East Tullos Houston Aberdeen TX 77094 AB12 3AX USA worldwide UK Energy Supporting Energy Tel +44 1224 851 000 Tel +1 281 828 3500 www.woodgroup.com John Wood Group PLC Annual Report and Accounts 2008 John Wood Group PLC

razil 109 Notes to the company financial statements Operations & maintenance support, B

An online version of the annual report and Additional information accounts 2008 is available at 119 Five year summary www.woodgroup.com/annualreport2008 120 Shareholder information

At a glance At a glance Our vision Our operating highlights 2008

Our vision is to be a leading global energy Engineering & Production Facilities services provider. Engineering • Active across all areas in 2008 and strong Share of Group revenue momentum into 2009 Engineering & Margin • Strengthened our market leading positions Production We will strive to attract, develop and retain the For more detail about our people initiatives turn to pages 34-35. • Important project wins Facilities best people, and to keep them safe. Rest of Group 9.7% Production Facilities • Strong demand from North Sea and international For more detail about our safety markets initiatives turn to We will consistently seek to provide services pages 36-37. • Long term relationships, with over 70% of 2009 revenue under contract and products that are recognised as market For more detail about our market • Continued to expand our duty holder business leading positions turn to pages 4-5. Printed in the UK by MPG impressions, Environmental Management leading. System ISO 14001 accredited and Forest Stewardship Council Well Support • Activity levels good through 2008 (FSC) chain of custody certified. Well Support Margin And we will endeavour to exceed our • Success in driving increased internationalisation Rest of Group This report is printed utilising vegetable based inks on paper stocks and delivering continued margin improvement customers’ expectations and deliver superior 10.4% which are produced from FSC certified fibre from well managed returns. • Flexible and responsive approach to our markets forests independently certified according to the rules of the Forest Stewardship Council.

All pulps used are Elemental Chlorine Free (ECF) and the manufacturing mill is accredited with the ISO 14001 standard for Gas Turbine Services • Increasing amount of work under longer term Gas Turbine environmental management. contracts Margin Our strategy For examples of how we are putting Services our strategy into action around the • Focus on efficiency driving margin improvement Rest of Group Designed and produced by aka:design www.annekenmure.co.uk world see pages 12-19. 7.6% Our strategy is to achieve long term sustainable • Around 85% of revenue is generated by customers’ growth by adding value to our customers’ operating expenditure operations with world leading, highly differentiated products and services. How we measure our performance Our strategy has four strands: We use the following Key Performance Indicators “KPIs” to measure the Group’s For more information on Financial performance – to maintain a good balance between field performance and in the management of our business. turn to pages 26-29. developments and later cycle production support KPI Objective 2008 2007 EBITA 1 Long term EBITA growth $441.0m $318.4m – to grow and maintain market leading positions, based on differentiated Return on Capital Employed Increase ROCE 33.3% 28.3% 2 know how “ROCE” Operating Capital Employed to Reduce OCER 18.2% 19.0% – to develop longer term customer Revenue “OCER” 3 relationships often through performance Adjusted diluted EPS 4 Long term adjusted diluted earnings per share 52.1c 36.9c based contracts growth

– to extend our services and broaden our Safety cases (per million Reduce incident rate 3.3 3.9 man hours) 5 international presence

For footnotes turn to page 29.

Energy Supporting Energy 1 John Wood Group PLC Annual Report 2008 2

At a glance At a glance Our vision Our operating highlights 2008

– to extend our services and broaden our Safety cases (per million Reduce incident rate 3.3 3.9 man hours) 5 international presence

For footnotes turn to page 29.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 3

At a glance Our performance

Results 2008 At a glance

Revenue EBITA 1 Profit before tax $5,243m up $441m up $384m up 2007: $4,433m 18% 2007: $318m 39% 2007: $260m 48%

Adjusted diluted ROCE 2 (%) OCER 3 (%) improved EPS (cents) 4 up 33% up 18% 52c 41% 2007: 28% 18% 2007: 19% 2007: 37c 4%

6 5 Dividend per People Safety cases improved Operational review ordinary share up 28,800 up (per million (cents) 29% 2007: 24,700 17% man hours) 9.0c 3.3 15% 2007: 7.0c 2007: 3.9 Governance Five year trading record

Revenue ($m) EBITA 1 ($m) Profit before tax ($m)

2008 5,243 2008 441 2008 384 2007 4,433 2007 318 2007 260 2006 3,469 2006 215 2006 184 2005 2,762 2005 149 2005 125 2004 2,288 2004 117 2004 66

Adjusted diluted EPS 4 (cents) ROCE 2 (%) OCER 3 (%) Financial statements 2008 52 2008 33 2008 18 2007 37 2007 28 2007 19 2006 25 2006 22 2006 22 2005 17 2005 17 2005 25 2004 13 2004 15 2004 28

Dividend per ordinary share (cents) People 6 Safety cases 5 (per million man hours)

2008 9.0 2008 28,800 2008 3.3 2007 7.0 2007 24,700 2007 3.9 2006 5.0 2006 20,900 2006 4.2 2005 4.0 2005 16,600 2005 4.6 2004 3.6 2004 14,600 2004 5.8

$ refers to US dollar, the functional and reporting currency of the Group

For footnotes turn to page 29. 4 John Wood Group PLC Annual Report 2008

At a glance What we do

Operations & maintenance Engineering design, Woking, Surrey support , Brazil

We operate in three Engineering & Production Facilities divisions, Engineering & We deliver a wide range of market leading engineering services to the upstream, midstream, downstream and industrial sectors. These include conceptual studies, Production Facilities, engineering, project and construction management “EPCM” and control systems Well Support and Gas upgrades. We provide life of field support to producing assets, through brownfield engineering and modifications, production enhancement, operations management Turbine Services (including UK duty holder services), training, maintenance management and abandonment services.

Engineering % Group revenue (a) Our market leading EPCM services for deepwater and lightweight Upstream 12% topsides, onshore (including oil sands) and positions and experience offshore processing facilities. EPCM services for subsea developments and provide a strong platform Subsea and offshore pipelines. EPCM and field service for pipelines 9% onshore pipelines. for continuing growth EPCM services, operational enhancements Downstream and control systems upgrades for refineries and industrial 9% (including clean fuel modifications), petrochemical plants, process and industrial facilities. Production Facilities Modifications and construction, operations UK North Sea & maintenance, production enhancement, 15% start-up and commissioning, supply chain Modifications and management, human resources operations support management (including safety training and competence development programmes) and UK North Sea decommissioning. Duty holder 5%

International Modifications and 12% operations support total 62% Key statistics Revenue by region Revenue by nature of customer spend Capex Opex (b)

90% 10% Engineering 20% 80% Production Facilities

20,000 people North America Europe 50% 50% Middle East & Africa up 19% Asia Pacific Central & South America

15% 85%

For more detail on Engineering & Production Facilities’ performance turn to pages 20-21.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 5

Surface wellhead inspection, Alberta, Canada Turbine accessory repair, Rayong Province, Thailand At a glance Well Support Gas Turbine Services We provide solutions, products and services to enhance We are the world leading independent provider of integrated production rates and efficiency from oil & gas reservoirs. We are maintenance solutions, and repair & overhaul services for industrial among the market leaders in artificial lift using electric submersible gas turbines, used for power generation, compression and pumps “ESPs”, in surface wellheads and valves, and in electric transmission in the oil & gas and power generation industries. and slickline services in the Gulf of Mexico.

% Group revenue (a) % Group revenue (a) Electric Supply of ESPs and service of Oil & Gas Repair & overhaul – field service, shop Operational review Submersible 9% submersible pumps for all major 7% based repair & overhaul, parts re- Pumps western manufacturers. Power engineering and parts supply. 9% Term maintenance – scheduling, technical solutions and advice. Turbine system solutions – retrofits and service for turbine control systems and fuel systems. Pressure Manufacture, supply and service Rotating equipment – repair and service Control 7% of surface wellheads, valves and for compressors, pumps and other wellhead systems that control rotating equipment. formation pressures and flow rates. Reliability & availability optimisation and asset integrity. Our power business also provides power Governance station operations & maintenance. Logging Provision of cased hole electric 3% line operations to gather Services Power plant engineering, procurement information and perform Equipment 3% and construction management – fast operations in a development or and project track power packages. a production well and slickline solutions 90% 10% mechanical operations to Equipment solutions – provision of gas 20% 80% gather information and perform turbine driven packages for power, operations in a production well. compression and pumping.

90% 10%

20% 80% 50% 50% total 19% total 19% Financial statements

Revenue by region Revenue by nature of customer spend Revenue by region Revenue by nature of customer spend Capex Opex (b) Capex Opex (b)

50% 50% 15% 85%

4,30015% people 85% 4,100 people North America North America Europe Europe Middle East & Africa up 10% Middle East & Africa up 11% Asia Pacific Asia Pacific Central & South America Central & South America

For more detail on Well Support’s For more detail on Gas Turbine Services’ performance turn to pages 22-23. performance turn to pages 24-25.

(a)(b) The split of Wood Group revenue and the split between customers’ capital expenditure (capex) and operating expenditure (opex) is based on management estimates and assumptions. The estimates are subject to variations from year to year dependent on activity in the periods. In the case of duty holder services the approximate split applies from 2009 onwards. 6 John Wood Group PLC Annual Report 2008

Operational review Chairman’s statement

2008 was a very successful year for Wood Group with record revenue of $5.2bn and record EBITA 1 of $441m. This excellent performance means that over the last four years we have delivered compound annual growth in adjusted diluted earnings per Sir Ian Wood, 4 Chairman share in excess of 40%.

2008 2007 2008 Group performance $m $m Change Revenue 5,243.1 4,432.7 +18% EBITA 1 441.0 318.4 +39% EBITA margin 8.4% 7.2% Profit before tax 384.1 259.9 +48% Basic EPS 49.6c 33.0c +50% Adjusted diluted EPS 4 52.1c 36.9c +41% Total dividend 9.0c 7.0c +29% ROCE 2 33.3% 28.3%

Reflecting the strength of our performance and continuing confidence in our long term growth, we are proposing a final dividend of 6.2c, taking the total dividend for the year to 9.0c, up 29% on last year.

Markets We used the strength of our oil & gas and power markets in 2008 to enhance our differentiation and further develop and internationalise our activities, and won a number of important new contracts. Engineering & Production Facilities strengthened its position in both its traditional markets, and in some new international markets. Well Support continued to increase revenue and margins in a competitive marketplace, develop new products and services, and increase the efficiency of its manufacturing operations. Gas Turbine Services continued its programme of developing the technology and engineering of new spare parts for the overhaul and repair of additional engine types, thus enhancing our differentiation and developing our market For more detail about positions in both the oil & gas and power markets. our financial performance turn to page 26. The world recession, volatile financial markets and exchange rates, and much lower oil and gas prices are expected to lead to For more detail about corporate governance a 10-15% reduction in global E&P expenditure and a decrease in turn to page 45. service company activity. This, along with the impact of the stronger

For footnotes turn to page 29.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 7 At a glance dollar on our non US dollar earning stream, will affect our shorter People term reported performance to some extent. However, there are We continue to make real progress in our objective of being an opportunities and we are working with a number of customers on employer of choice for quality people, providing them with a cost reduction and efficiency improvements, areas in which Wood challenging and interesting work environment in which no one will be Group has great experience and strength. Larger customers appear hurt. We are a global company with a global employment strategy to be continuing to make major project investment decisions based and policies, and our focus is on employing, encouraging, training, on the strongly prevailing view that oil and gas prices will increase developing and supporting the best quality people, working in a safe significantly in the medium term. Operators around the world are environment, around the world. finding it difficult to grow their reserves with ageing reservoirs, high depletion rates and the growing complexity and cost of new I believe we significantly achieve this and would like to thank, on developments. These reserves are often located in countries with behalf of the Board, all our people whose skills, commitment and higher levels of political and economic uncertainty and we have enthusiasm continue to drive our success and give us confidence Operational review a long track record of managing operations in such countries. in our future. I would also like to extend my personal thanks to my The International Energy Agency “IEA” is forecasting $8 trillion Board, and to Allister Langlands and his executive management in oil & gas exploration investment between now and 2030. A team who have led the company very successfully in 2008 and significant proportion of this will be in large deepwater and subsea have the skills, commitment and expertise to ensure we continue to developments, areas in which Wood Group is a world leader. We perform in the current more challenging environment. also believe we can use our growing knowledge and expertise in both carbon capture and storage and renewables to help our Outlook customers meet their growing environmental and climate change Wood Group’s strong order book, our focus on production support, objectives. our good international spread and our high quality customer base all stand us in good stead in these more challenging markets. The Overall, around 55% of our business (a) is linked to supporting current market provides opportunities as well as challenges and we production and operations which is less sensitive to lower oil prices. are focused on delivering innovative and creative solutions to achieve The current market provides opportunities as well as challenges. cost reduction and efficiency improvements for our customers. Governance Through innovative and creative solutions, we are working with our Longer term, we believe the fundamentals for oil & gas services customers to meet the challenge of much lower commodity prices remain strong and we are well positioned to capitalise on our high in the short term and, at the same time, will be very well placed to differentiation and market leading positions to deliver good growth. support the significant investment that will be applied as commodity prices strengthen.

Strategy Our strategy is to achieve long term sustainable growth by adding value to our customers’ operations with world leading, highly differentiated products and services. Our strategy has four strands which are:

• to maintain a good balance between field developments and Financial statements later cycle production support • to grow and maintain market leading positions based on Sir Ian Wood, Chairman differentiated know-how 2 March 2009 • to develop longer term customer relationships, often through performance based contracts, and • to extend our services and broaden our international presence.

We believe this strategy positions us well through the oil & gas cycle, with good defensive qualities well balanced with opportunities for growth. Our strong balance sheet position and recently extended bank facilities will enable us to continue to make value enhancing acquisitions and organic investments in order to emerge stronger from the downturn.

(a) The split of Wood Group revenue between customers’ capital expenditure (capex) and operating expenditure (opex) is based on management estimates and assumptions. The estimates are subject to variations from year to year dependent on activity in the periods. 8 John Wood Group PLC Annual Report 2008

Operational review Chief Executive’s report

2008 2007 2008 Divisional performance $m $m Change Revenue 5,243.1 4,432.7 +18% Engineering & Production Facilities 3,244.7 2,582.8 +26% Well Support 1,008.6 862.1 +17% Gas Turbine Services 956.6 955.7 – EBITA 441.0 318.4 +39% Engineering & Production Facilities 316.1 214.5 +47%

Allister Langlands, Well Support 105.0 87.1 +21% Chief Executive Gas Turbine Services 72.6 64.3 +13% EBITA margin 8.4% 7.2% Engineering & Production Facilities 9.7% 8.3% Well Support 10.4% 10.1% Gas Turbine Services 7.6% 6.7% Revenue up 18% Operating and financial highlights Review of 2008 Group revenue grew 18% to $5.2bn, reflecting strong growth in Engineering & Production Facilities and Well Support, and relatively flat revenue in Gas Turbine Services. The strong growth in Engineering EBITA & Production Facilities was driven by increased activity across all sectors in Engineering, and by the continuing strong demand for our Production Facilities activities in the North Sea and in international up 39% markets. In Well Support, activity levels were good through 2008 in all three businesses and we continued to grow our international revenue outside the US. In Gas Turbine Services, a good increase in underlying revenue was offset by the divestment of non core businesses and lower revenue from fast track power package contracts.

Revenue ($m) 2008 5,243 2007 4,433 2006 3,469 2005 2,762 2004 2,288

EBITA ($m) 2008 441 2007 318 2006 215 2005 149 2004 117

For more detail about our financial performance turn to pages 26-29. Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 9

Revenue by division Revenue by region Engineering & Production Facilities North America Well Support Europe Gas Turbine Services Middle East & Africa Asia Pacific Central & South America At a glance Group EBITA margin increased from 7.2% to 8.4%, reflecting Looking into 2009 the strengthening of margins in all divisions. The Engineering & Engineering & Production Facilities has entered 2009 with a strong Production Facilities margin increased due to improvements in the order book. In Engineering, we believe that our differentiated underlying margins for both Engineering and for Production Facilities capabilities, order book and prospects, market leading positions and activities, combined with the mix benefit of our higher margin high quality customer base help position us well. Production Facilities Engineering activities now representing 48% (2007: 44%) of division activity is largely driven by customers’ operating expenditure, with revenue. In Well Support we saw a continuing increase in overall around 70% of revenue based on longer term contracts. A number margin, benefiting from revenue growth and our investment in higher of our new contracts began in the last quarter of 2008 and this will margin products and services. In Gas Turbine Services our ongoing provide a good contribution in 2009. In Well Support we have already initiatives to increase the amount of work performed under longer taken decisive management action in light of the challenging outlook term contracts, changes in the mix towards higher margin activities, in the US gas market. International activities outside the US are over the divestment of non core activities and a focus on cost reduction 50% of Well Support’s revenue, which will also provide support in Operational review and efficiency all contributed to the improvement in margin. 2009. Gas Turbine Services continues to be the leading independent maintenance provider for industrial gas turbines, with around 85% of People revenue derived from operational support activity, and we anticipate 2008 has seen a tremendous year of growth in the number of people a resilient aftermarket performance in 2009. working at Wood Group. Total headcount increased by 17% to 28,800 people worldwide. We remain focused on striving to become 2009 will be a more challenging year for our industry due to the the employer of choice across all of our businesses. We recognise weakness in oil and gas prices and global economies. In light of that attracting, developing, and retaining the best talent enables us this, we remain flexible, carefully controlling costs and managing our to provide world class services and products to our customers and working capital. We have a strong balance sheet, have extended our growth for our shareholders. bank facilities to 2012 and are well positioned to take advantage of opportunities for acquisitions and organic investment which are likely Safety to emerge in this more challenging market. In 2008 we saw a 15% improvement in the frequency of all injuries to Governance 3.3 cases per million man hours. This was achieved through a series of Our 2009 reported earnings are likely to be impacted by the strength pro-active initiatives with a focus on leading performance indicators. of the US dollar reducing our reported non US dollar earnings Our lost work case frequency “LWCF” also improved by 27% to stream. However, in overall terms, the majority of the Group’s profit 1.1 cases per million man hours, reflecting a decrease in severity is in US dollars, therefore this has a net benefit to shareholders in our of injuries. We are committed to achieving the highest standards of currency of listing. safety in everything that we do and around the world we have won recognition for the performance that we have achieved. Continuous We remain confident in the longer term fundamentals of our key improvement is a key measure of our success and is given the highest markets and are continuing to execute our long term growth strategy. priority. We believe we will be successful when no one is hurt. Financial statements

Allister Langlands, Chief Executive 2 March 2009

For more detail about For more detail about our divisional performance our CSR initiatives turn to pages 20-25. turn to pages 32-39. 10 John Wood Group PLC Annual Report 2008

Operational review Wood Group in action

Our strategy is to achieve long term sustainable growth by adding value to our customers’ operations with world-leading, highly differentiated products and services.

Our strategy has four strands:

– to maintain a good balance between field developments and later cycle production support

– to grow and maintain market leading positions, based on differentiated know how

– to develop longer term customer relationships, often through performance based contracts

– to extend our services and broaden our international presence

For examples of how we are putting our strategy into action around the world see pages 12 to 19.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 11 At a glance Operational review Governance Financial statements

Sevan Piranema Wood Group personnel inspect the inside of the Piranema FPSO ballast tanks prior to tow-out. 12 John Wood Group PLC Annual Report 2008

Balance Maintaining a good balance between field Greater EkoFisk Area Development project, Norway development…

We have a broad service offering across a range of Recent field development projects include: complex activities within the oil & gas and power ConocoPhillips EkoFisk, North Sea generation industries. This means we can provide Delivering front end engineering design “FEED” services for the Greater our customers with life of field support from the initial Ekofisk Area Development, a 40-slot wellhead platform located in concept definition, through the development phase, into approximately 70-75 metres of water in the Norwegian sector of the production support and decommissioning. North Sea. We will also provide design services for the subsea flow lines and pipelines across the Greater Ekofisk Area.

Modec Jubilee FPSO, Ghana Providing the topsides design for Modec for the floating production storage and offloading vessel “FPSO” for the Jubilee field development offshore Ghana, West Africa. The project is targeting first production in the second half of 2010.

Shell Perdido, Gulf of Mexico Conceptual engineering, detailed design, procurement assistance and fabrication support for what will be the deepest spar platform in the world. This regional drilling and production hub will be installed in ultra deepwater slightly greater than 7,800 feet in the Gulf of Mexico.

BP’s Valhall redevelopment project, offshore Norway (CAD illustration) We are working on the redevelopment of the Valhall field for BP Norge AS. Our services include FEED, detailed design, procurement and project management services for the new combined production and hotel platform. The scope extends over the full project duration from the start of FEED to project completion, including construction management assistance. The redevelopment will extend field life by approximately 40 years, until 2050. Illustration courtesy of BP.

Energy Supporting Energy 13

St Fergus Gas Terminal, Scotland We are the market leader in operations & maintenance support for UK onshore facilities and now work on nine terminals, including the St Fergus Gas Terminal.

Repair & overhaul at ESP facility, Oklahoma City, OK

…and later cycle production support At a glance

Recent production support work includes:

North Sea operations support We are the leading provider of operations support services in the UK North Sea. We have been providing services to the region’s leading operators for over 20 years. Current contracts include Apache, BP,

Shell, Total, Talisman and Hess. In 2008 we continued to expand our Operational review market share with newer entrants such as TAQA and Ithaca.

Middle East production support We have recently been awarded two significant contracts for the supply of downhole electric submersible pumping “ESP” equipment and services in the Middle East with two key national oil companies “NOCs”, the Kuwait Oil Company “KOC” and Petroleum Development Oman “PDO”. In Kuwait we monitor and maintain equipment for KOC to ensure timely well intervention. In Oman we have one of the largest in country ESP infrastructures and this allows us to provide PDO with fast equipment delivery, minimising operational downtime. Governance Financial statements 14 John Wood Group PLC Annual Report 2008 SPAR – Deep draft surface piercing cylinder type of floater, particularly well adapted to deepwater, which accommodates drilling, top tensioned risers and dry completions

Leading positions Semi-submersible – a particular type of floating vessel that is supported Growing and maintaining primarily on large pontoon- like structures submerged market leading positions below the sea surface

We focus on achieving market leadership and and pipeline engineering. We are technology leaders in several areas, differentiation in areas where we believe we have, such as high pressure/high temperature “HP/HT”, cryogenic pipelines, remote sensing, pipeline stabilisation, flow assurance, risers & integrity or can build, competitive advantage. We have a track management and have experience in both greenfield and brownfield record of building market leading positions both arenas. organically and through acquisitions. Downstream Market leading positions across the Group include: We have a market leading position in EPCM services in the US, operational enhancements and control system upgrades for refineries, Deepwater topsides including clean fuel modifications. We have a market leading position in the conceptual engineering, FEED and detailed engineering, project and construction management Surface valves and wellheads “EPCM” of deepwater topsides around the world. We have worked on We have a market leading position in the US for surface valves and over 30% of deepwater topsides installed worldwide. wellheads. We have developed very responsive distribution networks in the newer shale gas areas and have bundled services together to meet Subsea and pipeline engineering our customers’ needs. We have a reputation built up over 30 years of world class performance and, with the acquisition of MCS during the year, we have Gas turbine operations & maintenance consolidated our Subsea & Pipelines Technology group’s position as We are the world’s leading independent provider of integrated the world’s leading solutions independent engineering & management maintenance solutions (such as for the Al-Rusail power plant in the services provider for subsea systems. We have around 1,500 specialist Sultanate of Oman), and repair & overhaul services for industrial personnel situated in 14 permanent offices. We have strong technical gas turbines. We are also a leader in power station operations & excellence and a reputation for efficient project delivery in subsea maintenance.

Moorings – Means of connecting the anchor on the seafloor to a large ship or a floating structure at the surface

Al-Rusail power plant , Sultanate of Oman , Cleburne, TX Wellhead operations

Energy Supporting Energy 15

Floating production storage & off loading vessel “FPSO” Floating tanker – a converted or custom- off loading buoy built vessel, employed to process oil & gas and for temporary storage of the oil prior to shipment At a glance

Hybrid Riser – A riser which typically combines a lower rigid riser section with an upper flexible pipe section

Flexible Riser – A flexible pipe or assembly of flexible pipes

used to transfer produced Operational review fluids from the seabed to the surface facilities or to transfer injection fluids, control fluids or lift gas from the surface facilities and the seabed

Umbilical – Provides a means of robust connection between the topside control facilities and the subsea control elements. The

umbilical comprises hydraulic & Governance electrical control lines which are used in the operation, maintenance and control of subsea installations and equipments Financial statements

Manifold – Manifolds are seafloor subsea arrangements consisting of valves, piping and controls which are used to collect fluids from subsea wells, combine Wells – Drilled into the several flows into one, and reroute seabed through oil or the flow to a processing facility on gas bearing deposits, the platform Typical subsea tie back the well bore is lined This diagram shows a typical subsea with a cemented steel tie back. We are the world’s leading pipe, which projects above the seabed solutions independent engineering forming a wellhead and management services provider for subsea systems. 16 John Wood Group PLC Annual Report 2008

Relationships Developing longer term relationships with customers

We are focused on developing strong relationships Strong relationships we have developed with customers with customers by providing cost effective and reliable include: project delivery. Our success in this area is demonstrated Global subsea agreement by the long term relationships we have with major We have been supporting BP in key subsea regions around the world international operators, national oil companies, for over 30 years in designing the most up to date subsea facilities to independents and power companies throughout the meet the increasing demands for more efficient energy production. world. We have entered into a five year global agreement to provide engineering and project management services for their offshore subsea development projects.

Equatorial Guinea operations support We have provided operations, maintenance, project management, construction, logistics and training services in Equatorial Guinea since 2003 when we were awarded our first contract with Marathon. Since establishing our presence in the country we have expanded to provide a broad range of services to ExxonMobil, Hess and Equatorial Guinea LNG. We now provide services to eleven offshore platforms,

Energy Supporting Energy 17

Operations support, Equatorial Guinea East Texas Electric Cooperative, Texas At a glance Operational review Governance

two FPSO’s, two onshore support bases, two training facilities, one LPG plant, one LNG plant and have over 600 personnel in Equatorial Guinea.

East Texas Electric Cooperative “ETEC” We are currently working with East Texas Electric Cooperative “ETEC” on a $36 million contract to construct and commission the San Jacinto

Generating Facility, which will include two General Electric Frame 7EA Financial statements gas turbine generators. ETEC comprises ten electric cooperatives in the East Texas region providing low cost, reliable power to more than 300,000 consumers.

The San Jacinto plant will be constructed on a fast track basis to help ETEC meet increased electricity demands within its service territory, commencing in 2009. We believe our strong experience with this type of plant design and equipment was the key differentiator that led ETEC to select us as its preferred partner in this project. We have also been awarded a six year operations & maintenance contract covering full care, custody & control.

ESP service facility, Abu Dhabi A Wood Group employee along with a representative from our customer Total inspect a surface pumping system at the test facility in Abu Dhabi prior to delivery to Yemen. 18 John Wood Group PLC Annual Report 2008

Service & reach Extending our services and broadening our international presence

Our business success comes from serving our the natural gas currently re-injected into oil reservoirs. The first phase customers well. This means recognising their needs will seek to capture five million tons of CO2 gas per year by the end of 2013 from three emission sources: a gas fired power plant, an and delivering new and innovative solutions. We have a aluminium smelter and a steel mill. strong focus on both organic growth and acquisitions to expand our service and product lines and provide UK duty holderships, North Sea access to new customers and new geographic markets. We are providing operations support services for the changing United Kingdom Continental Shelf “UKCS” licensee landscape including We have extended our services and broadened our international many newer entrants. We have built up our capability and now have presence to include: a significant position in UKCS duty holder services. Our duty holder installations now include the Beatrice offshore complex and wind farm, Masdar Carbon Capture & Storage, Abu Dhabi, UAE the onshore terminal at Nigg, Venture’s Hummingbird FPSO and the We are providing services for Masdar’s Carbon Capture and Storage four TAQA platforms – Tern, Eider, North Cormorant and Cormorant “CCS” project in the United Arab Emirates. The project constitutes Alpha.

the first phase in a series of facilities capturing CO2 emissions from industrial and power generation plants in Abu Dhabi.

The CO2 will be transported in a pipeline network and injected in Abu Dhabi’s oil reservoirs for enhanced oil recovery. The objective of the CCS network is to reduce Abu Dhabi’s carbon footprint and replace

Opearations maintenance & services, BP Trinidad

Venture Hummingbird North Sea duty holder operation

Energy Supporting Energy 19 At a glance

Operations & maintenance support, Trinidad We are providing offshore and onshore maintenance & reliability, modifications engineering and field execution and materials management services for BP’s production facilities in Trinidad. We have over 400 personnel in country under a five year, reimbursable, performance based contract. Operational review Deepwater Logging, Gulf of Mexico, USA We have extended our traditional land and Gulf of Mexico shelf based logging services to provide high pressure/high temperature pipe recovery services in the deepwater Gulf of Mexico. We have successfully built a market leading position in this area.

Gas Turbine Asset Managment Solutions “AMS”, the Netherlands Total has contracted us for the provision of gas turbine and compressor equipment support services for its offshore assets. The agreement means we will provide asset management support services for all critical rotating equipment, including Siemens and Solar turbines, and gas compression units. Governance Financial statements

Clear Lake, Iowa, USA We have extended our power station operations & maintenance services across North America. 20 John Wood Group PLC Annual Report 2008

Operational review Engineering & Production Facilities

We deliver a wide range of market leading engineering services to the upstream, midstream, downstream and industrial sectors. These include conceptual studies, engineering, project and construction management “EPCM” and control systems upgrades. We provide life of field support to producing assets, through brownfield engineering and modifications, production enhancement, operations management (including UK duty holder services), training, maintenance management and abandonment services.

2008 2007 Change $m $m Revenue 3,244.7 2,582.8 +26% EBITA 316.1 214.5 +47% EBITA margin 9.7% 8.3% People 20,000 16,800 +19%

Operating and financial highlights Throughout the year we have benefited from strong demand across left to right: the Engineering & Production Facilities division. The revenue split in the Mike Straughen, period between Engineering and Production Facilities was 48% to 52% Group Director, Engineering (2007: 44% to 56%). Engineering was active across all sectors, and Les Thomas, continues to expand its range of services and geographic footprint. Group Director, Production Facilities Production Facilities continues to be active in the North Sea and a number of international markets.

EBITA margin increased from 8.3% to 9.7%, due to increases in the Revenue underlying margins in both Engineering and in Production Facilities along with an increased proportion of higher margin Engineering work.

up 26% Divisional headcount, including contractors, is approximately 20,000 people, an increase of 19% since last year. Engineering now has 8,700 people, an increase of 20% on 2007, while Production Facilities, with 11,300 people, rose 19%. EBITA up 47%

Engineering – services and sectors Production Facilities – services and sectors Enhanced Services Sector Expertise includes Exploration Development Production Recovery Abandonment

Upstream • deepwater and lightweight Training topsides Pre-operations Engineering, project • onshore processing facilities Commissioning Start-up support and construction including oil sands management, refinery Subsea • subsea engineering Operations and maintenance upgrades and and pipelines • onshore and offshore Modifications (inc. engineering, operational pipelines project management & construction) Production enhancement enhancement Downstream • refineries, petrochemical Life extension and industrial plants, process and industrial Decommissioning facilities

To read about our directors turn to pages 42-43.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 21

engineering design, UK Brownfield IMV, F oster Creek, Canada At a glance Engineering ongoing engineering, operations support, production enhancement Upstream activities represent around 40% of Engineering revenue and asset integrity services. In addition we have grown a significant and 12% of Group revenue. We continue to develop our market duty holder business during the year, providing support to the newer leading positions in deepwater engineering and lightweight topsides entrants to the region. Our duty holder installations now include the and in engineering for the in situ oil sands market. The developments Beatrice offshore complex and wind farm, the onshore terminal at on which we work are typically longer term, complex projects and Nigg, Venture’s Hummingbird FPSO and the four TAQA platforms – have the potential to add meaningfully to our customers’ reserve Tern, Eider, North Cormorant and Cormorant Alpha. Looking ahead, bases. We work predominantly with International Oil Companies we will continue to adapt and develop our service provision as the “IOCs”, National Oil Companies “NOCs” and large independents market evolves. and during the period worked on upstream projects for Shell (Perdido), ConocoPhillips (Ekofisk), BP (Valhall and Thunderhorse), Our international activities, which make up 40% of Production ENI (Nikaitchuq, Alaska), Hess Corporation (Pony), Statoil (Peregrino, Facilities and 12% of Group revenue, continued to perform well. Operational review Brazil and Leismer, Canada), Encana (Foster Creek), Tullow (Uganda) We continue to be active under longer term contracts in Algeria, and Modec (Ghana). Brunei, Colombia, Equatorial Guinea, Indonesia, Peru and Trinidad. We enhanced our position in the US with the acquisition of PAC in Subsea engineering, pipelines and midstream represents around January 2008, extending our significant Gulf of Mexico presence 30% of Engineering and 9% of Group revenue. We consolidated into the support of the US onshore production market. In August our market leading position with the acquisition of MCS during 2008 we acquired M&O Global, a provider of industrial safety and the year, a global subsea engineering consultancy with a market emergency response training. M&O will help us to further support a leading position in riser & mooring design, and a leading offering broad range of international customers, especially NOCs, in training of advanced engineering and software solutions to the subsea and developing their local workforces. In the Middle East we entered industry. Along with other Group companies J P Kenny, Multiphase into a joint venture with Consolidated Contractors Company “CCC”, Solutions Inc. and Ionik Consulting, MCS is now part of the Subsea an international construction company with a market leading position & Pipelines Technology business group, which is the largest of in the region, in order to provide operations and maintenance its kind in the world. Our customer base includes IOCs, NOCs services in the region. Governance and large independents and we are working with customers such as BP (various projects under a global framework agreement), Engineering & Production Facilities outlook Chevron (Gorgon), Shell (Gumusut-Kakap, Malaysia), Total/Statoil/ In Engineering & Production Facilities, we entered 2009 with a strong Gazprom (Shtokman) and Woodside (Pluto) to develop large longer order book. We believe that in upstream the deepwater sector term projects with meaningful reserves. The onshore pipeline will remain active, although some delays are expected in oil sands group has been busy connecting new oil and gas developments to developments. Subsea and offshore pipeline spending is expected consumers, working with Williams (various compressor stations), to be robust and onshore pipeline demand is anticipated to remain Cairn (Rajasthan, India), Kinder Morgan (various pipelines) and Rocky high. In our downstream activities the levels of regulatory work are Mountain Express. During the year we were awarded the FEED expected to remain strong in 2009, with significant activity required contract for Masdar’s Carbon Capture and Storage “CCS” project by customers to meet MSAT2 clean air regulations by 2011. in the United Arab Emirates, which is an area where we see good Automation, which focuses on efficiency benefits for customers,

future growth. We have also been involved in a number of floating continues to be very active. We have a high quality flexible resource Financial statements LNG studies for Petronras, Teekay and BW Offshore. across Engineering and have already taken action to keep utilisation levels high. Current markets will also provide opportunities for quality Downstream, process and industrial represents around 30% of FEED work and fit for purpose engineering, as our clients look for Engineering and 9% of Group revenue. Environmental legislation, efficiency improvements. upgrades and heavy oil modifications have meant that our refining business had a successful year performing work for CCRL Production Facilities, with around 70% of revenue under longer term (Saskatchewan project), Tesoro, Valero and Citgo. The automation contracts and a focus on the support of ongoing production, has group has been active on work for ExxonMobil in Singapore and relatively lower sensitivity to the oil price. We have consolidated our various projects for Chevron and ConocoPhillips. market leading position in the North Sea and expanded our scope with new entrants, which will provide an important contribution in Production Facilities 2009. Internationally, we continue to see good scope for growth and Our activities in the North Sea, where we are the largest expansion into new markets, particularly where there is limited local maintenance, modifications and operations contractor, represent capability. We continue to offer performance contracting solutions 60% of Production Facilities revenue and 19% of Group revenue. to add value to our customers and have recently taken a number of We operate under long term contracts with customers such as steps to respond to cost challenges. Apache, BP, Hess, Shell, Talisman and Total providing them with 22 John Wood Group PLC Annual Report 2008

Operational review Well Support

We provide solutions, products and services to enhance production rates and efficiency from oil & gas reservoirs. We are among the market leaders in artificial lift using electric submersible pumps “ESPs”, in surface wellheads and valves, and in electric and slickline services in the Gulf of Mexico.

2008 2007 Change $m $m Revenue 1,008.6 862.1 +17% EBITA 105.0 87.1 +21% EBITA margin 10.4% 10.1% People 4,300 3,900 +10%

Operating and financial highlights 2008 was a good year for the Well Support division with revenue Jim Renfroe, growth in all three businesses contributing to an overall increase of Group Director, Well Support 17%. The percentage of business performed outside the US continues to increase and is now over 50%. Specific areas of strength in 2008 were Latin America and Middle East & Africa. Activity levels throughout 2008 remained high despite a falling US rig count at the end of the year. The EBITA margin increased from 10.1% to 10.4% benefiting from revenue growth and our investment in higher margin products Revenue and services. up 17%

EBITA up 21%

Well Support – services and sectors

Development Production Enhanced Recovery Pressure Control

Logging Services

Electric Submersible Pumps

To read about our directors turn to pages 42-43.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 23

exico, USA Logging Services, Gulf of M Surface multistage centrifugal pumping system At a glance Electric Submersible Pumps Logging Services Our ESP business represents around 50% of Well Support and Our Logging Services business represents around 15% of Well around 9% of Group revenue. Our business is mainly driven by the Support and 3% of Group revenue. Our development focused operating expenditure of customers and the need for artificial lift in electric wireline services and production focused slickline services new and mature oil reservoirs. Approximately 25% of our revenue both performed well. In recent years we have expanded our capacity comes from the US where we have a market leading position and opened new bases which have helped us develop a strong in the sale, operation and service of ESPs used for production position in value added services. During the year we have worked enhancement through artificial lift. The remaining 75% of our revenue on projects for operators in the deepwater Gulf of Mexico, Pan comes from outside the US where we typically have longer term American in Argentina and several US based independents on contracts and a strong IOC and NOC customer base. Examples of onshore shale developments. projects worked on in 2008 include pay for performance contracts in Africa and the Middle East. Well Support outlook Operational review 2009 will be a challenging year for Well Support, with the number Pressure Control of active rigs operating in the US significantly reduced. In Pressure Our Pressure Control business represents around 35% of Well Control, which is primarily focused on gas developments, the Support and around 7% of Group revenue. Our business is driven reduction in drilling activity means the outlook is more demanding primarily by the gas drilling activity of our customers. In the US, and we expect significant volume decreases and pricing pressure. where we generated around 60% of our revenue in 2008, we believe In Logging Services, the market outlook is similarly challenging, we are now the largest provider of surface valves and wellheads. although we have an element of production related revenue. In Increasing levels of rig activity for most of 2008 and high depletion ESP, our strong production related content, good international rates in unconventional gas developments contributed to strong exposure and flexible approach to market should lead to a robust activity levels and demand for our services. Internationally, where performance. We have already taken decisive management action around 40% of revenue is generated, we continue to expand our to reduce SG&A, achieve supply chain efficiencies and to reduce business under longer term contracts with IOC and NOC customers. headcount significantly in all three businesses as market activity has Examples of key projects worked on in 2008 include for Sinopec in changed, particularly in North America. Governance China, Aramco in Saudi Arabia and Pemex in Mexico. Financial statements

inspection, Canada Pressure control, China Surface well head 24 John Wood Group PLC Annual Report 2008

Operational review Gas Turbine Services

We are the world leading independent provider of integrated maintenance solutions, and repair and overhaul services for industrial gas turbines, used for power generation, compression and transmission in the oil & gas and power generation industries.

2008 2007 Change $m $m Revenue 956.6 955.7 – EBITA 72.6 64.3 +13% EBITA margin 7.6% 6.7% People 4,100 3,700 +11%

Operating and financial highlights Gas Turbine Services revenue was unchanged in the period, with a Mark Papworth, 14% increase in underlying revenue being offset by the divestment of Group Director, Gas Turbine Services non core businesses and lower fast track power solutions revenue. The increase in EBITA margin from 6.7% to 7.6% was as a result of ongoing initiatives to increase the amount of work performed under longer term contracts, changes in the mix towards higher margin activities, the divestment of non core activities and a focus on cost EBITA reduction and efficiency. We have increased the amount of revenue generated under longer term contracts from 39% to 41%. We continue to focus on increasing up 13% the breadth of our core activities, adding further new product capability and providing customer focused solutions. We now have over 4,100 people, serving customers in over 100 countries. EBITA margin up to 7.6%

Gas Turbine Services – services and sectors

Oil & Gas Power & Industrial Light Industrial Turbines – less than 10MW

Aero-derivative Turbines – 10-50MW

Heavy Industrial Turbines – more than 50MW

To read about our directors turn to pages 42-43.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 25

facility, Houston, Texas olar ® gas turbine service Power station S operations & maintenance , Clear Lake, Iowa At a glance Oil & gas There are power shortages in the developing world and in parts of Our oil & gas activities support turbines that are used for power the developed world where distribution networks are insufficient to generation, gas compression and transmission and represent take power to where it is needed. This has led to demand for fast around one third of Gas Turbine Services revenue. Through our OEM track power solutions where we have a competitive advantage in licensed joint ventures we have broad technical capabilities and our ability to locate, refurbish, install, operate, warrant and maintain know how, a strong service culture and a market leading share of equipment. During 2008 we made equipment sales into the Middle the aftermarket for aero-derivative gas turbines. Most of the installed East and South America and we successfully completed the fast turbines on which we work are linked to existing production and track power projects for American Electric Power “AEP” which therefore have relatively lower sensitivity to oil and gas prices. During commenced in 2007. We also secured three relocation projects in 2008 we were active on an increasing number of turbines for NOCs Texas, one for El Paso Electric and two for East Texas Electric including Petrobras, Pemex and Petronas and our newly formed Co-operative “ETEC” which will be executed in 2009. Asset Management Solutions “AMS” group secured longer term Operational review rotating equipment contracts with TAQA in the North Sea and Total Gas Turbine Services outlook in the Netherlands. Our light industrial turbine activities continued We anticipate that demand for our oil & gas related maintenance, to grow and increased market share through success in developing repair & overhaul services will remain robust in 2009, due to its new products and penetrating new regions. production focussed nature and the longer term contracts we have in place. We have a good spread of business with NOCs, IOCs Power and large independents. In the power market there may be some Our power activities provide support for turbines that are used for regional short term weakness, as certain customers look to defer power generation and industrial applications, and represent around maintenance but in the longer term, demand for power, and in two thirds of Gas Turbine Services revenues. Demand for our particular gas turbine generated power, is expected to increase, services is driven by the maintenance budgets of customers. Recent leading to strong ongoing demand for our services. We continue to reductions in the gas price have made gas a more cost effective focus on initiatives to increase the amount of business under longer input for power generation and in the longer term the environmental term contracts, expand our regional and customer portfolio, divest benefits of gas relative to other fossil fuels mean that it is forecast of non core businesses and reduce costs. Overall we anticipate Governance to gain an increasing share of generating capacity. During 2008 we a resilient aftermarket performance. The outlook for our fast track were active on a large number of projects including those for NYPA, power package activities is being impacted by the continuing tight Suez and Duke. credit markets, although we currently see strong enquiry levels. Financial statements

Turbine systems solutions Power and industrial turbines, USA 26 John Wood Group PLC Annual Report 2008

Operational review Financial review

Financial Performance

Financial performance

Key Performance Indicator EBITA 1 We use earnings before interest, tax and amortisation as a key indicator of operating profit.

Key Performance Indicator Adjusted diluted EPS 4 We use adjusted diluted EPS as a key indicator of post tax profit attributable to each share.

Alan Semple, Group Finance Director 2008 2007 Change $m $m Revenue 5,243.1 4,432.7 +18%

Measuring our performance – We use a variety of key EBITA 441.0 318.4 +39% performance measures to evaluate the Group’s financial EBITA Margin 8.4% 7.2% performance. These include earnings before interest, Amortisation 25.2 10.6 tax and amortisation “EBITA” and adjusted diluted Impairment and restructuring earnings per share “EPS” to measure the profitability of charges and profit on disposal of interest in joint venture – 22.6 the business, along with other metrics such as Return Operating profit 415.8 285.2 +46% on Capital Employed “ROCE” and Operating Capital Net finance expense 31.7 25.3 Employed to Revenue “OCER” which measure how Profit before tax 384.1 259.9 +48% efficiently we use capital. These metrics are included Tax 128.7 91.0 in the Group’s senior management incentive schemes, Profit for the year 255.4 168.9 +51%

alongside strategy, people development and safety Basic EPS (cents) 49.6c 33.0c +50% measures. Adjusted diluted EPS (cents) 52.1c 36.9c +41% Dividend per share (cents) 9.0c 7.0c +29%

2008 saw another year of strong growth in revenue, EBITA and EBITA margin. Revenue increased by 18% to $5,243.1m, EBITA by 39% to $441.0m and EBITA margin by 120 basis points to 8.4%.

A detailed review of our trading performance is contained within the divisional reviews on pages 20 to 25.

Amortisation The amortisation charge of $25.2m includes $11.9m (2007: $2.0m) of amortisation relating to other intangible assets arising from acquisitions, most notably $8.1m from the purchase of IMV in November 2007. There was a full year of IMV amortisation in 2008 compared to only one month in 2007.

To read about divisional performance turn to pages 20-25.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 27

Financial Performance

Finance expense Returns on Investment The net finance expense in the period of $31.7m is made up of interest expense of $37.7m (2007: $32.7m) (including deemed Key Performance Indicator interest) and interest income of $6.0m (2007: $7.4m). Return on Capital Employed “ROCE” 2 We use ROCE as a key indicator of the efficiency of our use of total capital The net finance expense is higher than 2007 due to higher average levels of net debt in the period, combined with a charge of $4.0m

The Group’s ROCE increased from 28.3% to 33.3%. The overall At a glance (2007: $1.4m) relating to the accounting treatment of deferred improvement reflects improved performance in all divisions combined consideration payments. with the impact of higher growth in areas of relatively lower capital intensity. Taxation The movement in the tax charge is outlined below – ROCE (%) 2008 2007 $m $m 2008 33 Tax charge 128.7 91.0 2007 28 Tax on impairment and restructuring charges and 2006 22 profit on disposal of interest in joint venture – 3.5 2005 17 Adjusted tax charge 128.7 94.5 2004 15 Profit before tax 384.1 259.9

Impairment and restructuring charges and Foreign exchange Operational review profit on disposal of interest in joint venture – 22.6 The Group’s EBITA is impacted in a number of ways by movements Amortisation of other intangible assets in foreign exchange rates, including the effect of retranslating foreign on acquisition 11.9 2.0 currency results at different average rates year to year. Given the Adjusted profit before tax 396.0 284.5 material strengthening in the US dollar over recent months, a number Effective tax rate 32.5% 33.2% of current foreign exchange rates are significantly different from the average rates for 2008. The table below sets out the impact on 2008 The reduction in the Group’s effective tax rate from 33.2% to 32.5% EBITA had current exchange rates applied. Also set out below is the reflects a change in the geographical mix of our operations and a impact of the movement of exchange rates on our Sterling equivalent range of tax efficiency measures implemented. earnings, as this is the currency in which our shares are traded.

2008 – translated 2008 – translated Dividend at actual at current The final dividend of 6.2c results in a full year dividend of 9.0c, an average rates rates 8 Governance increase of 29% from last year. Dividend cover 7 for 2008 was 5.8 Revenue EBITA Revenue EBITA times (2007: 5.3 times). $m $m $m $m Engineering & Dividend (cents) Production Facilities 3,244.7 316.1 2,872.2 289.1 2008 9.0 Well Support 1,008.6 105.0 983.1 100.6 2007 7.0 Gas Turbine Services 956.6 72.6 898.0 63.8 2006 5.0 2005 4.0 Central / to be disposed 33.2 (52.7) 33.2 (49.0) 2004 3.6 Total 5,243.1 441.0 4,786.5 404.5 £m £m £m £m Sterling equivalent 9 2,836.6 238.6 3,301.0 279.0

As the majority of the Group’s profit is generated in US dollars, a Financial statements stronger US dollar has a net benefit for shareholders in our currency of listing. The impact of retranslating the 2008 reported EBITA at current rates would be to reduce reported EBITA by 8%, but in Sterling equivalent terms EBITA would have increased by 17%. 28 John Wood Group PLC Annual Report 2008

Operational review Financial review

Balance Sheet and Financial Management

2008 2007 Returns on operating capital Summary balance sheet $m $m Assets Key Performance Indicator Non-current assets 958.0 903.1 Operating Capital Employed to Revenue “OCER” 3 Current assets 1,844.1 1,567.4 We use OCER as a key indicator of our use of operating capital Liabilities Current liabilities 1,061.8 984.6 The Group’s OCER 3, a measure used in the Group’s incentive Net current assets 782.3 582.8 schemes to drive operating capital employed efficiency, improved from Non-current liabilities 593.3 500.0 19.0% to 18.2% in the year. Net assets 1,147.0 985.9 Total shareholders’ equity 1,133.9 974.6 OCER (%) Minority interest 13.1 11.3 Total equity 1,147.0 985.9 2008 18 2007 19 The Group balance sheet is strong with net assets of $1,147.0m and 2006 22 2005 25 net current assets of $782.3m. 2004 28

Non-current assets is primarily made up of goodwill and other Net debt intangible assets, and property plant and equipment. The increase Net debt at 31 December 2008 decreased by $29.1m to $248.8m. of $54.9m in the period is as a result of acquisitions and capital This represents strong cash flow from operations and the positive expenditure in the period, offset by amortisation and depreciation. impact of the retranslation of foreign currency borrowings, offset by the investment in capex, intangible assets and acquisitions. The principal movements in current assets and liabilities are discussed in cash generated from operations below. 2008 248.8 2007 277.9 2008 2007 2006 257.9 2005 245.8 Cash generated from operations $m $m 2004 354.3 Opening net debt (277.9) (257.9) EBITA 441.0 318.4 Long term borrowings amounted to $390.7m (2007: $349.9m) Depreciation and other non cash items 93.5 75.9 with interest payable at variable rates. Interest rate swaps have been entered into in respect of $166.5m (2007: $175.0m), or 43% Cash generated from operations before working capital movements 534.5 394.3 (2007: 50%) of total long term borrowings, and these have the effect of converting the borrowings to fixed rates of interest with maturities Working capital movements (181.0) (55.3) ranging from 2009 to 2013. Cash generated from operations 353.5 339.0 Acquisitions (112.2) (125.8) The Group’s borrowings are predominantly denominated in US dollars, Capex and intangible assets (102.6) (92.6) Sterling, Euros and Canadian dollars. Whenever practical, foreign Disposals 32.5 9.0 currency borrowings are used to hedge the Group’s net investment in non US dollar entities. (Purchase)/issue of shares, net of sale of trust shares (23.7) 16.4 Credit facilities Tax paid (112.1) (105.9) At 31 December 2008 the Group had unutilised borrowing facilities Interest, dividends and other (60.6) (49.5) of $632.0m (2007: $474.4m) representing 60% (2007: 55%) of total Exchange movements on net debt 54.3 (10.6) borrowing facilities. Since the year end, our bilateral facilities have been Decrease/(increase) in net debt 29.1 (20.0) extended to 2012 with the potential for two, one year extensions. This Closing net debt (248.8) (277.9) results in total borrowing facilities of $1,056.9m.

The Group had strong cash flow generation in 2008, with cash In addition the Group has a number of facilities covering the issue of generated from operations before working capital increasing by bonds, guarantees and letters of credit amounting to $236.0m (2007: $140.2m, or 36%, to $534.5m. The strong overall revenue growth $257.7m). of $810.4m contributed to working capital outflows during the year of $181.0m (2007:$55.3m) made up of an increase of $104.1m in Gearing 10 inventories and of $298.3m in trade and other receivables, partly offset The Group’s gearing ratio has reduced from 28.5% to 21.9% and the by an increase of $221.4m in trade and other payables. The inventory ratio of net debt to EBITDA (earnings before interest, tax, depreciation figure includes a planned increase in Gas Turbine Services turbine and amortisation) fell from 0.7 times to 0.5 times. parts of around $45m and the increase in trade receivables takes into 2008 22 account lower advance payments from customers of around $20m. 2007 29 2006 32 2005 36 2004 67

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 29

Balance Sheet and Financial Management

Interest Cover 11 software solutions to the subsea industry. The acquisition of MCS is Interest cover increased from 12.6 times to 13.9 times, reflecting the part of our ongoing strategy to expand and enhance our capabilities strong profit in the period. in subsea and deepwater.

2008 13.9 The Group also made small disposals during the year. Further details 2007 12.6 2006 9.0 of the acquisitions and disposals are provided in note 28 of the 2005 6.4 financial statements. At a glance 2004 6.1

Financial risk management The Group Treasury department is responsible for managing debt, cash balances and the risks arising from interest rate and currency movements within an approved policy framework. The Group’s Footnotes overall risk management strategy is to hedge exposures wherever practical in order to minimise any potential impact on the Group’s 1. EBITA represents operating profit of $415.8m (2007: $285.2m) financial performance. The policy does not allow speculative for 2008 before adjusting for profit on disposal of interest in transactions to be undertaken. Full details of financial instruments joint venture of $ nil (2007:$3.6m), impairment and restructuring used are provided in note 18 to the financial statements. charges of $ nil (2007: $26.2m) and amortisation of $25.2m (2007: $10.6m). This financial term is provided as it is a key unit

Credit risk of measurement used by the Group in the management of its Operational review The Group’s credit risk primarily relates to its trade receivables which business. are generally with customers who have strong credit ratings assigned 2. Return on Capital Employed is EBITA divided by average equity by international credit rating agencies. Reflecting in part higher levels plus average net debt and excludes businesses to be disposed. of political and economic uncertainty in certain markets and in part 3. Operating Capital Employed to Revenue “OCER” is Operating the risk that the downturn in the global economy could lead to a Capital Employed (property, plant and equipment,intangible slowing of payments from customers and a risk of non payment in assets (excluding intangibles recognised on acquisition), the event of customer insolvency, the Group has increased its focus inventories and trade and other receivables less trade and other on credit risk and credit management and appropriate measures payables) divided by Revenue. have been implemented to reduce our risk profile where possible. Further details on receivables and credit risk are provided in notes 13 4. Shares held by the Group’s employee share ownership trusts are and 18 to the financial statements. excluded from the number of shares in calculating earnings per ordinary share. Adjusted diluted earnings per ordinary share is Governance Pensions based on the diluted number of shares, taking account of share The majority of the Group’s pension arrangements are on a options where the effect of these is dilutive. Adjusted diluted defined contribution basis. The Group operates one UK defined earnings per ordinary share is calculated on earnings before benefit scheme which had 404 active members and 828 deferred, amortisation, impairment and restructuring charges and profit pensionable deferred or pensionable members at 31 December on disposal of interest in joint venture, net of tax. 2008. At 31 December 2008 the scheme had a deficit of $23.1m 5. ‘Cases’ refers to TRCF Total recordable case frequency (2007: $11.3m). (LWC+RWC+MTC) per million manhours LWC Lost work case In assessing the potential liabilities, judgement is required to RWC Restricted work case determine the assumptions around future salary and pension MTC Medical treatment case increases, inflation, investment returns and member longevity. 6. Number of employees and contractors at 31 December 2008. Future benefits under the scheme are provided on a Career Average Revalued Earnings “CARE” basis. 7. Dividend cover is adjusted diluted earnings per ordinary share Financial statements divided by the total dividend per ordinary share for the period. Full details of pension assets and liabilities are provided in note 30 to 8. 2008 US dollar results translated at current exchange rates are the Group financial statements. calculated by translating the underlying local currency amounts to US dollars at current exchange rates. The exchange rate used Acquisitions and disposals for Sterling was £1=$1.45 and other currencies were translated In January 2008 the Group acquired Producers Assistance using rates applying in February 2009. Corporation “PAC”. The acquisition of PAC provides the Group with a 9. The Sterling equivalent of the 2008 actual results is calculated wider presence in the support of onshore US production. by translating the US dollar results at the average Sterling to US dollar exchange rate for the year of £1=$1.85. The Sterling The Group completed the acquisition of M&O Global in August 2008, equivalent of the retranslated 2008 results is calculated by expanding our capability in safety and emergency response training. translating the amounts to Sterling at the exchange rate of £1=$1.45. In September 2008, the Group acquired MCS, a global subsea 10. Gearing is net debt divided by total shareholders’ equity. engineering consultancy with a market leading position in riser & mooring design, and a leading offering of advanced engineering and 11. Interest cover is EBITA divided by net finance costs. 30 John Wood Group PLC Annual Report 2008

Operational review Principal risks and uncertainties

There are a number of risks and uncertainties which may have an impact on the performance of the Group. These are explained below, along with the approach to managing the risk or uncertainty. In addition to the specific mitigating factors noted below there are some Group wide risk management processes in place which address a wide cross section of risks. These include quarterly review meetings between senior managers and certain of the executive directors, including the Chief Executive.

Risk Area and Potential Impact Mitigation

Risk area • We operate in both the oil & gas and • We manage exposure to engineering Operating in cyclical oil & gas power markets, reducing our exposure markets by maintaining a split of oil & and power markets to one particular market gas activities between upstream; subsea • We have a broad customer base and engineering, pipelines and midstream; Potential Impact geographic spread, which includes a and downstream, process and industrial A cyclical downturn or a prolonged global mix of IOCs, NOCs, large and small sectors

Market Risks recession could lead to uncertainty in our independents, power and industrial • We maintain focus on identifying any customers spending plans and declines in companies upcoming weaknesses in the market, • We seek to maintain a good balance in adjusting investment and pricing the demand for our services and products our revenue between customers’ capital strategies appropriately expenditure “capex” and operating • Our businesses are flexible and have a expenditure “opex” relatively low capital intensity • We have market leading positions in several significant areas and have developed longer term relationships with customers

Risk area • We carry out strategic investment • We have detailed integration plans for Investment in new service areas and reviews of the future areas of focus for acquisitions geographic markets the Group • We adopt earn out structures wherever • We carry out return assessments and possible Potential Impact due diligence reviews prior to investment • The Group Board undertakes an annual Investment (capital or operating) in new review of the performance of acquisitions initiatives or acquisitions may fail to generate made in the preceding three years, to an adequate return identify lessons learned

Risk area • The Group Board monitors HSE • Leading and lagging safety indicators Health, Safety and Environmental performance, with a Group Director are used across the Group to measure “HSE” performance responsible for HSE performance and guide management • HSE commitment is communicated action plans Potential Impact around the Group via our Vision for HSE • Certain of our operations are subject to Failure to deliver HSE excellence could Excellence, HSE systems and guidelines third party and customer audits lead to harm to our people, damage to the set down in the “Red Book”, the annual • We have launched a pilot programme environment and could lead to customers Group HSE plan, newsletters, the to measure our carbon footprint for a intranet and HSE conferences sample of businesses no longer selecting the Group as a preferred supplier of services and products For further details – see page 36

Risk area • The quality of our people helps us to • We use market based compensation, Strategic and operational risks Attraction and retention of key management secure challenging and interesting work, including appropriate incentive packages and this, in turn, helps us to attract and and we offer wide ranging career Potential Impact retain talent in the Group development and training opportunities Failure to attract and retain key management • We give management considerable • We continue to expand our geographic could lead to a lack of necessary expertise autonomy while maintaining short lines of footprint to provide access to highly or continuity to execute our strategy communication to senior managers and skilled labour resources Group directors • We focus on all our businesses worldwide becoming employers of choice

For further details – see pages 34-37

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 31

Risk Area and Potential Impact Mitigation

Risk area • We have a business ethics is undertaken by key management Compliance with our ethical standards committee in place, chaired by and employees Potential Impact the Group Finance Director and • Ethics helplines are available for involving senior operational and employees to raise any concerns in Damage to reputation and regulatory functional management from across confidence impact the Group • We take firm action against any • Our business ethics policy and breaches of our ethical standards guidelines are communicated to staff. Training and self-certification For further details – see page 38 Risk area • We have extensive quality systems • New product designs undergo Quality of services and products across our businesses prescribed validation and verification Potential Impact • We have a range of initiatives testing to help our people develop and Failure to provide services and enhance their expertise For further details – see page 39 At a glance

Strategic and operational risks operational and Strategic products of the required quality • Many of our plants obtain third party could lead to a requirement for accreditation and perform internal work to be repeated, damage to our audits reputation or liability claims

Risk area • We maintain a strong balance • We have committed longer Access to capital sheet, with shareholders’ equity of term banking facilities providing Potential Impact $1,134m, gearing of 22%, net debt/ significant headroom recently EBITDA of 0.5 times and interest extended to 2012 Inability to obtain funding to take cover of 14 times as of December

advantage of shareholder value creating 2008 For further details – see pages 26-29 Operational review opportunities

Risk area • We have procedures in place to • In light of the current economic A downturn in the economy leads to a check the creditworthiness of environment the Group has slowing of payments from customers in new customers and credit limits in increased its focus on credit risk place for existing customers that and credit management and some markets and an increased risk of are reviewed on a regular basis, appropriate measures have been non payment in the event of customer including, where appropriate, the implemented to reduce our risk use of external reference agencies profile where possible Financial and compliance risks insolvency Potential Impact For further details – see page 29 Reduction in profit due to bad debt provisions and write offs Governance Risk area • A significant proportion of our • We undertake reviews of the pricing Contracting strategy and execution contracts are reimbursable and we of contract bids and carry out generally avoid large complex fixed ongoing commercial reviews of Potential Impact price contracting arrangements terms, including external and peer Inappropriate contract terms, or failure to • We have a contract policy reviews comply with those terms, could lead to that provides guidance on the unacceptable risks, reputational damage, parameters under which we will warranty claims or financial penalties enter into contracts to provide services and products

Risk area • We have a contract policy • The Board receives presentations Operating in a range of different that provides guidance on the on specific countries in which parameters under which we will the Group maintains a significant legal, political and fiscal regimes Financial statements enter into contracts to provide interest Potential Impact services and products Changes in the legal and political • We monitor and limit the capital environment may result in financial loss or allocation to certain countries and the loss of control over operations, while maintain a broad geographic spread fiscal changes could impact net profit

Risk area • Prudent levels of insurance cover • We review exposures to areas where Adequacy of insurance cover are maintained across a range of it is not possible to obtain, or we Potential Impact insurers have elected not to obtain, insurance and consider alternative ways to Requirement to fund uninsured losses reduce our risk to an acceptable level

Risk area • A financial control frameworks is • We have a comprehensive system Integrity of financial controls in place, incorporating preparation of reporting performance to the Potential Impact and review of monthly financial Board, including monthly and information, delegation of authority quarterly reports Damage to reputation, financial loss or and annual financial controls self • We have an internal audit inaccurate financial information used to assessment department and an external audit manage the business is performed on the financial statements 32 John Wood Group PLC Annual Report 2008

Corporate Social Responsibility Working responsibly worldwide

“Creating a safe and ethical culture in which our people can thrive, maintaining a healthy workplace and minimising adverse environmental impacts are some of our highest business objectives.” Allister Langlands, Chief Executive

Energy Supporting Energy 33 At a glance Operational review Governance Financial statements

Hand Safety at work Our Logging Services business embarked on a campaign to reduce hand injuries which involved the wearing of high visibility gloves to help highlight potential hazardous activities. Logging Services has not had a recordable hand injury since the programme was adopted at the end of 2007. 34 John Wood Group PLC Annual Report 2008

Corporate social responsibility Our framework of CSR reporting

Our people

Employer of choice We will treat all our people fairly, responsibly and with dignity, respecting their individual differences and helping them to achieve their potential.

Headcount growth 2008 has been a significant year of growth in the number of people working at Wood Group. Total number of people increased by 4,100 2008 28,800 (17%) to 28,800. We have seen strong growth in all our regions and 2007 24,700 are particularly pleased to have grown our Asia Pacific workforce by 2006 20,900 2005 16,600 42% and our numbers in the Central & South America region by 12%. 2004 14,600 Our graduate and apprenticeship programmes expanded in the UK, In 2008 approximately 20% were employed as consultants US, Colombia, Brunei and Indonesia, particularly across engineering (2007: 14%). For details of average headcount for 2008 excluding and business disciplines. consultants see note 29 of the financial statements. Our continuing focus on all Wood Group businesses worldwide becoming employers of choice has helped us keep our annual Headcount by region Change by region 2007–08 voluntary turnover rates below 11%. The Group places strong emphasis on communication and involvement. We publish a Group magazine in twelve languages and provide regular local updates. Senior managers also participate in roadshows around the Group to 18% discuss progress and talk with employees about how they contribute 16% to our success. 5% 42% Mustang 4th in Houston’s best places to work listing 12% In June, Mustang Engineering was ranked 4th on the ‘Best Places to Work’ survey among 140 Houston companies with 501+ employees and was the only project management and engineering company named on the list. The survey, carried out by the Houston Business North America Asia Pacific Journal, was based on a confidential 37-question survey of Houston Europe Central & South America based employees reflecting attitudes about their employer and the Middle East & Africa workplace.

Steve Knowles, President of Mustang commented, “This is a wonderful honour for Mustang and is reflective of being People Oriented… Project Driven®, a philosophy that permeates all aspects of our culture and operations. We constantly strive to keep a small company, family feel despite our tremendous growth”.

Highlights 2008

ision Award Jenny Tagallie, IMechE V

Kevin Sinclair, Oil & Gas UK Young Technician 2008 Mustang 4th “Best Place to Work” Houston

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 35

Our people

Training & development We are committed to attracting and keeping the highest calibre people. Our many training and development programmes are designed to enable our staff to learn new skills and refine existing ones. At a glance We want our people to enjoy their work and feel they have the skills We take an international approach to supporting academic research needed to do their job to the best of their ability. Our training and and engineering education, working with a number of universities. development programmes are tailored to our employees’ long term career objectives and the needs of our business. Canada – sponsoring “The Wood Group Chair in Offshore Engineering for Arctic and Harsh Environments” at Memorial In 2008 our Group led training initiatives supplemented business University, Newfoundland. unit programmes and provided a positive learning environment for our people where ideas were discussed openly. Launched in UK – we launched a five-year scholarship project programme, in 2004, our Management Development Programme “MDP” now conjunction with Talisman, to support the career development of has over 400 alumni, 95% of whom remain with the Group. Our students at the Robert Gordon University “RGU”, Aberdeen. Financial Development Programme “FDP”, a continuing professional development programme for our senior financial professionals is United Arab Emirates – supporting engineering students at now in its fifth year. Managing People Effectively “MPE” is aimed at the Dubai campus of Heriot Watt University through Energy Operational review supervisors, managers and technical professionals. It provides them Excellence Awards. with an opportunity to practise and develop the required skills to become more effective managers of people. Kazakhstan – established a Professorial chair at the Kazakhstan British Technical University “KBTU” in Almaty. In a business which employs many engineers and technical specialists we recognised the need to develop skills and Australia – supporting students on the offshore pipeline design understanding of non technical areas, in particular finance. Our course at the University of Western Australia. Understanding Business Finance course was introduced enabling participants in non financial roles to effectively use financial tools in their business planning and decision making processes.

We also saw significant growth in learning through training Governance development and competency programmes across our businesses worldwide. These included, Rolls Wood Group apprentice scheme in the UK, Equipo Abilities System in Colombia and our SQV accredited Competence Assurance System in Trinidad. We also continue to develop the J P Kenny Academy, which is setting new competency standards around the world and the ‘Out in Front’ employee development programme in our North Sea business, which provides opportunities to emerging leaders. Financial statements

SQV accredited Competence Assurance System in Trinidad. HRH Prince Andrew attends graduation day at KBTU llister A Langlands at RGU scholarship launch 36 John Wood Group PLC Annual Report 2008

Corporate social responsibility Our framework of CSR reporting

Our people

Health Safety As an integral part of our business we will We will be successful when no one is maintain a healthy workplace. hurt… and we remain committed to further improvement.

Promoting and enhancing health and wellbeing is an integral part of our TRCF Vision for HSE Excellence. We are committed to reducing instances of 2008 3.3 occupational illness, reducing sickness & absenteeism and increasing 2007 3.9 awareness of healthy lifestyle options. 2006 4.2 2005 4.6 Les Thomas is the Director with Group responsibility for Health, Safety 2004 5.8 and the Environment “HSE”. We aim to continually improve the quality of occupational health management by controlling more effectively LWCF the health risks arising from our activities and promoting the benefit of healthy lifestyles for our employees via campaigns and health fairs. 2008 1.1 2007 1.5 In 2008 we continued to develop practices focused on issues such 2006 1.2 as asbestos, vibration white finger, malaria, health promotion and 2005 1.5 wellbeing. 2004 1.8

Hand Arm Vibration Syndrome “HAVS” Since the introduction of a HAVS awareness programme in 2005 TRCF is the frequency of all reportable injuries, including medical we have seen an 82%* fall in the number of reported cases. The treatment cases. LWCF is the frequency of all injuries resulting in lost programme has been rolled out across the UK and is designed to time away from work. Both frequencies are measured per million hours ensure that all relevant personnel are aware of the risks of HAVS and worked. the measures that can be taken to reduce these risks. In 2008 we saw a reduction in TRCF of 15% compared to 2007. This Onsite health centre was achieved through a series of initiatives, with a focus on leading More than 3,000 employees in the Houston area are benefiting from performance indicators. Our LWCF also reduced by 27%, compared an onsite health centre. The centre offers employees and their families with 2007, reflecting a decrease in the severity of injuries. a health care benefit that is convenient, tailored to their needs and affordable. In line with our Vision for HSE excellence we are committed to continuous improvement. During 2009 we aim to achieve a further Health fairs reduction in the frequency of safety incidents. The annual Health & Fitness Fair for Wood Group employees based in Scotland was attended by more than 250 employees. Attractions included health checks and advice from medical professionals on issues including diet, exercise, UV sun damage, smoking cessation and alcohol awareness.

Highlights 2008

Wood Group Health & Fitness Fair 2008

Wednesday 17th September, 10am - 3pm @ David Lloyd Club, Garthdee, Aberdeen

Don’t miss out on the following events and attractions and the chance to win some excellent prizes on the day! • Free health checks and advice from medically qualified professionals • Surf simulator and competition • Pro Golf Swing Analyser • Try out a new dance or exercise class • Steve Redgrave Rowing Challenge • Chiropractors, physiotherapists & dieticians • Shiatsu massage & reiki taster sessions • Win a mountain bike and helmet • Plus healthy snacks, more prizes and giveaways

You can also try out the facilities on the day at David Lloyd, and take advantage of the Wood Group corporate discount.

Please contact Sarah Borowski if you have any questions about the event: [email protected]

Employees in Aberdeen take part in a driver safety day WGPC, China , Chairman’s HSE Award 2008

*Based on recorded data for Wood Group Engineering (North Sea) Ltd

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 37

Our people Our environment

We seek to minimise the adverse environmental impact of Wood Group and to help customers minimise their environmental impact. At a glance HSE Global Conferences Carbon Footprint Pilot Programme One of the ways we drive continuous improvement is to share best The Group has launched an initiative to measure the carbon footprint practice across the Group. A key mechanism for this has been across a range of businesses, so that we can identify opportunities regional HSE conferences. In 2008 over 500 senior managers and to reduce carbon emissions. The key objectives of the pilot are to – HSE professionals attended regional HSE conferences in Aberdeen, • put in place appropriate processes and procedures to gather the Houston, Bogotá, Abu Dhabi and Singapore. necessary data in a consistent and robust manner • complete a baseline assessment for 2008 using the UK’s Carbon Frontline Focus Trust calculator We have introduced Frontline Focus to address immediate • identify the areas causing the largest impacts and identify priorities for improving safety where the risks are greatest. Frontline improvement actions Focus aims to spread best practice to all corners of the Group by • re-measure the respective carbon footprints at the end of 2009 directing management time, energy and effort to the frontline of our • capture learning from the pilot and develop the optimal approach Operational review operations. for roll out to the wider Group. As with existing HSE programs, activities will be tailored in each We have obtained the ISO 14001 certification for ten of our organisation and location to address the needs of each business. businesses, and use it as a basis for our environmental processes Examples of areas of focus in 2009 will include: safety leadership around the Group. training, joint customer and Wood Group site visits and audits, security & emergency response exercises. One of the main ways in which we can have a positive impact on the environment is through helping our customers to reduce their impact. Safety awards achieved • Rolls Wood Group Ltd received a RoSPA Gold Award During the year we have been involved in several environmental • SKS Wood received a Living Goal Zero award, issued by Brunei projects, for example –

Shell Petroleum Governance • front end engineering design “FEED” services for Masdar’s • Wood Group Gas Turbine Services received a Presidents Award Carbon Capture & Storage “CCS” project in the United Arab from RoSPA Emirates. See page 18 for further details. • Wood Group Engineering (North Sea) Ltd received a Scottish • J P Kenny is the engineering and management contractor for Engineering Safety Award Wave Hub, which will create an electrical ‘socket’ on the seabed • Wood Group Colombia received a “VECTOR” award connected to the National Grid via a subsea cable. With a • IMV Projects received a GPAC Safety Award capacity of up to 20MW, it will allow the pre-commercial testing of wave energy devices on a scale not seen before anywhere in the world.

Financial statements

took place in 2008 Five regional HSE conferences

WGENS awarded Scottish Engineering Safety Award An artist’s impression of Wave Hub 38 John Wood Group PLC Annual Report 2008

Corporate social responsibility Our framework of CSR reporting

Our business and the community

Community & social Ethics Caring for our communities is important to us We expect our people to uphold high ethical and we encourage all our people to engage in standards wherever in the world our business community projects at a local level. takes them. We also expect those with whom we do business to embrace similar values and standards. In 2008 we continued to support an extensive range of local and international charities spanning health, education, the arts, and the prevention and reduction of poverty. Ensuring compliance Non-compliance with applicable laws and regulations or ethical We have a well established Employee Community Fund supporting misconduct could damage our reputation and reduce shareholder charities and fundraising efforts involving our employees around the value. world. The Group’s business ethics policy sets out standards of conduct, As part of a team building programme, managers from several promotes best practice and provides resolution procedures when countries participated in a Build-a-Bike project. More than 20 bikes questions arise. The business ethics policy was updated in early 2009. were delivered to deserving children in the community. The Group Finance Director chairs the Business Ethics Committee Mustang was presented the 2008 Star Award by the West Houston which comprises senior management representatives from across Chamber of Commerce. The award recognises businesses who have the Group’s operations. The Committee monitors the operation of the contributed to the community both in economic development and business ethics policy and works to promote compliance and resolve social responsibility. issues.

Children in Colombia enjoyed a Christmas gift thanks to the generosity Telephone helplines and an email address where concerns can be of Wood Group employees from around the world. Donations from raised confidentially are used to encourage personnel to raise ethical Australia, Norway, Spain, Qatar, the UK, and the US provided gift bags concerns and questions and report potential violations. The Group for families in Colombia. Each of the 74 children received a sweater, a has a rigorous process for investigating any potential violations pair of trousers, toys, fruit juice, a cake and sweets. Their mothers also of its business ethics policy. During 2008 there were a number of received a gift bag containing essential cooking ingredients. investigations undertaken and the Group took disciplinary action, including 15 terminations, for breaches of ethical standards. We are a long term supporter of the annual Aberdeen International Youth Festival, the world’s premiere participatory youth arts festival, with up to 1,000 participants and over 70 events during a two week period.

Highlights 2008

Workshop at Aberdeen International Youth Festival

supporting local community Volunteers from Mustang Christmas gift donations in Colombia

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 39

Our business and the community

Our customers Our shareholders Our goal is to add value to our customers We seek to ensure that stakeholders, analysts through the delivery of high quality services and financial media are well informed of our and products. strategy, results and financial outlook through clear and timely communication. At a glance

Customer Mix (a) Significant shareholders (>3% shareholdings) We seek to maintain a diverse international customer mix. The The Company has been notified, in accordance with Section 793 of following shows our typical customer type and geographic mix – the Companies Act 2006 and DTR 5.1.2R, of the following interests representing 3% or more of the issued ordinary share capital of the Revenue by IOC Company as at 2 March 2009. customer type Large independent Number % of share of shares capital Small independent Baillie Gifford 37,975,057 7.19% NOC Trustees of I C Wood’s Children’s Settlement 1997 30,954,060 5.86% Power & other Trustees of I C Wood’s Children’s Settlement 1981 28,987,413 5.49%

Schroder Investments 26,065,805 4.94% Operational review Revenue by North America Employee Share Trusts 21,877,452 4.14% region Europe Legal & General 16,206,672 3.07% Middle East & Africa Asia Pacific Sir Ian Wood has interests amounting to more than 3% of the share Central & South America capital as disclosed on page 56.

The Group places considerable importance on communication with Focus on customer quality all shareholders, both institutional and private, and maintains open As part of our commitment to quality we have quality systems in channels of communication with shareholders, fund managers and place across the Group. Where appropriate, we encourage our analysts. To allow the Group an insight into shareholder needs and businesses to adopt formal quality standards and achieve external perceptions of the Group, the Group’s brokers are invited to make an accreditation. Examples from across the Group are given below. annual presentation to the Board. Governance

Within Engineering we have been progressing with external During 2008, investor roadshows were held covering the UK, Europe accreditation of the quality management systems across the and the US. In addition, an investor and analyst presentation was businesses. Accreditation was achieved in parts of the business in held in November 2008 which allowed analysts and investors to 2008 and others will follow in 2009. meet with the Group Directors responsible for all divisions and hear an update on their businesses. Non-executive directors are offered Within Production Facilities our North Sea business’ Quality the opportunity to attend meetings with major shareholders. The Management System is fully compliant to ISO 9001:2008 and is AGM, which will be held on 13 May 2009, is a valuable opportunity certified and registered by BSi Management Systems, a UKAS for shareholders to have face to face contact with the Board and to accredited organisation. BSi, as our certification body, visits and raise any questions they may have. assesses our systems twice a year and we recently successfully completed our first 2009 assessment, which included transition and The senior independent director is available to meet with certification to the revised ISO 9001 standard 2008 edition. shareholders to discuss any areas of concern that cannot be Financial statements resolved through normal channels of investor communication, and In Well Support we have obtained, or are in the process of attaining, arrangements for this can be made through the Company Secretary. API certification for our two manufacturing plants in China. Our Tianjin facility has had API level 2 accreditation since 2005 and during 2008 received the highest level of accreditation, level 4. Our new facility in Suzhou has been through the process to receive level 4 accreditation and is anticipating approval in 2009.

Gas Turbine Services is undertaking a global program to improve delivered quality and customer satisfaction through business process efficiency improvements and the deployment of standardised lean tools. One of the programme’s objectives is to halve the number of quality escapes year on year and this was achieved in 2008.

(a) The split of revenue by customer is based on management estimates and assumptions. The split is subject to variations from year to year dependent on activity in the periods. 40 John Wood Group PLC Annual Report 2008

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 41

Governance At a glance

Contents

42 Board of directors 44 Report of the directors 45 Corporate governance 49 Directors’ remuneration report Operational review Governance Financial statements 42 John Wood Group PLC Annual Report 2008

Governance Board of directors

Sir Ian Wood (age 66) Chairman Appointed: Chairman 1982, Chief Executive from 1982 to 2006. Experience: Chairman of J W Holdings Limited, one of Scotland’s larger fishing groups, a past member of PILOT, the joint UK government and industry oil & gas leadership group, past Co-Chair of the UK Oil & Gas Industry Leadership Team and Chancellor of Robert Gordon University, Aberdeen. Committee membership: Chairman of the Nominations Committee.

Allister G Langlands (age 50) Chief Executive Appointed: Chief Executive 2007, Deputy Chief Executive from 1999 to 2007. Experience: Served as Group Finance Director from 1991 to 2000 and prior to joining Wood Group was a partner with Coopers & Lybrand Deloitte (now PricewaterhouseCoopers LLP). Committee membership: None

Alan G Semple (age 49) Group Finance Director Appointed: 2000 Experience: Served as Finance Director for the Well Support business from 1997 to 2000 and prior to joining Wood Group was Finance Director of GRT Bus Group PLC, now part of FirstGroup plc, a transportation company. From 1987 to 1994 was Finance Director of Seaforth Maritime Group Limited, an energy services company. Committee membership: None

Mike Straughen (age 59) Group Director, Engineering Appointed: 2007 Experience: Previously with AMEC plc for 25 years, latterly as Group Managing Director responsible for UK activities across all sectors, including Global Oil & Gas. Previously a member of PILOT, from 2002 to 2008, and Chairman of the Energy Industry Council from 2002 to 2007. Committee membership: None

Les J Thomas (age 51) Group Director, Production Facilities Appointed: 2004 Experience: Previously President of Marathon Oil UK and Europe responsible for Marathon’s operations in the UK, Ireland and Norway. Committee membership: None

Jim B Renfroe (age 55) Group Director, Well Support Appointed: 2008 Experience: Previously with Halliburton for 33 years in a number of senior roles, most recently as Senior Vice-President, Strategy. Committee membership: None

Mark H Papworth (age 44) Group Director, Gas Turbine Services Appointed: 2006 Experience: Joined Wood Group in February 2005 as Chief Operating Officer of Gas Turbine Services. Previously Chief Operating Officer and Executive Vice President with Rolls-Royce Energy. Committee membership: None

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 43

Dr Christopher Masters (age 61) Non-executive Director, Senior Independent Director Appointed: 2002 Experience: Currently a non-executive Director of British Assets Trust PLC, the Alliance Trust PLC, The Crown Agents and Creative Scotland 2009 Ltd. Chairman of Sagentia Group PLC and the Festival City Theatres Trust. Also a Fellow of the Royal Society of Edinburgh. Previously served as Executive Chairman of Aggreko plc. Committee membership: Chairman of the Audit Committee, member of the Nominations Committee.

Ian D Marchant (age 48) Non-executive Director At a glance Appointed: 2006 Experience: Chief Executive of Scottish and Southern Energy PLC, Chairman of the Climate Change Business Policy Group in Scotland and non-executive Director of Maggie’s Cancer Centres. Also a member of Ofgem’s Environmental Advisory Group and the Energy Research Partnership. Committee membership: Member of the Audit and Nominations Committees.

D John Ogren (age 65) Non-executive Director Appointed: 2001 Experience: A Director of Core Laboratories N.V., and non-executive Chairman of WellDynamics,

a joint venture company owned by Shell and Halliburton. Served as President of Production Operational review Operators, Inc from 1994 until 1999 and from 1992 until 1994 as Senior Vice President of E.I. Du Pont De Nemours and Company. From 1989 until 1992 was Senior Vice President of Conoco, Inc. Committee membership: Member of the Remuneration and Nominations Committees.

Roberto Monti (age 69) Non-executive Director Appointed: 2001. Experience: Currently a non-executive Director of Petrobras Energia S. A. and Tenaris S. A and non-executive Chairman of Trefoil Limited. Served as Executive Vice President of Exploration and Production for Repsol YPF between 1999 and 2002 and was President and Chief Executive Officer of YPF S. A. from 1995 to 1999 prior to its acquisition by Repsol. From 1993 to 1995, he served as President of Dowell, a division of Schlumberger. Committee membership: Member of the Remuneration and Nominations Committees. Governance

Neil H Smith (age 44) Non-executive Director Appointed: 2004 Experience: President & Chief Executive Officer since 2006 of InterGen, a global power generation company. Previously held numerous positions within InterGen, including President & Chief Operating Officer. A member of the Dean’s Council at Harvard University’s John F. Kennedy School of Government. Committee membership: Member of the Remuneration and Nominations Committees.

John C Morgan (age 64) Non-executive Director

Appointed: 1998 Financial statements Experience: Non-executive Chairman of Venture Production Company PLC. Joined the Board after 30 years of international experience with BP in a range of management roles, including President of BP Exploration Alaska. Committee membership: Chairman of the Remuneration Committee, Member of the Audit and Nominations Committees.

David Woodward (age 62) Non-executive Director Appointed: 2007 Experience: Currently Chief Operating Officer of the Oil and Gas Unit of Mubadala, a leading business development and investment company based in Abu Dhabi. Previously with BP for 36 years, his last appointment was President of BP Azerbaijan, responsible for oil and gas investment of $20billion in the Caspian Region. Also previously held senior BP positions in Moscow, Alaska, Abu Dhabi, Norway, and Aberdeen. In 2006 he was awarded the CMG for services to the international oil industry. Committee membership: Member of the Audit and Nominations Committees. 44 John Wood Group PLC Annual Report 2008

Governance Report of the directors

The directors submit their report together with the audited financial Donations statements of the Group for the year ended 31 December 2008. During the year the Group made charitable donations amounting to $861,000 (2007: $790,000). Results and dividends The Group income statement for the year is set out on page 60. In It is the Group’s policy to support charitable organisations in the respect of the year ended 31 December 2008 an interim dividend of 2.8 communities where its businesses are located or with which employees cents per share was paid on 25 September 2008 and the directors have or close relatives of employees are directly involved. No donations of a recommended a final dividend of 6.2 cents per share. political nature were made.

Creditor payment policy e-communications The Group’s current policy concerning payment to its trade creditors by At the Annual General Meeting on 22 May 2008, shareholders passed UK subsidiaries is to: a resolution to enable the Company to send documents or information a) settle the terms of payment with those suppliers when agreeing the to members by making them available on the website or by electronic terms of each transaction means. b) ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts Auditors c) abide by the terms of payment A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the company will be proposed at the Annual General Meeting. UK subsidiaries follow this policy and overseas subsidiaries are encouraged to apply local best practices.

Other information Other information relevant to and forming part of the Report of the directors is to be found in the following sections of the annual report -

Information Location in Annual Report Directors’ details Board of directors (pages 42 to 43) Future developments Operational review (pages 6 to 31) Principal activities and business review Operational review (pages 6 to 31) Principal risks and uncertainties Principal risks and uncertainties (pages 30 to 31) Acquisitions and other developments Note 28 to the financial statements (page 97) Details of principal subsidiaries and joint ventures Note 35 to the financial statements (page 104) Corporate governance Corporate governance (page 45 to 48) Going concern Corporate governance (page 45 to 48) Statement of directors’ responsibilities Corporate governance (page 45 to 48) Employment policies and employee communications Corporate social responsibility (pages 32 to 39) Ethical conduct of our business Corporate social responsibility (pages 32 to 39) Health, safety and the environment Corporate social responsibility (pages 32 to 39) Substantial shareholders Corporate social responsibility (pages 32 to 39) Share Capital Note 22 to the financial statements (page 92) Directors’ interests in options over ordinary shares Remuneration report (pages 49 to 56) Directors’ interests in ordinary shares Remuneration report (pages 49 to 56)

By order of the board

Ian Johnson Company Secretary 2 March 2009

Registered Office: John Wood House, Greenwell Road, Aberdeen AB12 3AX.

Company Registration Number: 36219

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 45

Governance Corporate governance

Statement of Compliance Discharge of its responsibilities The Board met seven times in 2008. Four of the meetings were This report has been prepared in accordance with the revised scheduled as two day sessions. Combined Code on Corporate Governance published in 2006 “the Code” which applies for the period covered by this report. The Board has a schedule of matters specifically reserved for its The directors consider that the company has complied with the consideration and approval. It is responsible for Group strategy, provisions of the Code throughout the year ended 31 December the annual budget, significant acquisitions and the overall system 2008. of internal control. Executive management is responsible for the implementation of Board decisions in these areas and all other The Board is committed to maintaining high standards of corporate aspects of managing the business. The Board has received At a glance governance. detailed presentations from senior management within the Group’s businesses during the year in connection with the Board’s review The Code requires the Board to state its reasons for considering a of Group strategy, including regular presentations on the Group’s non-executive director to be independent if he has served for more current health and safety performance. The Board gave detailed than nine years. J C Morgan, who has served as a non-executive consideration to reports on the Group’s systems of internal control director for more than nine years, will offer himself for re-election and presentations were made on specific countries in which the at the 2009 AGM and annually thereafter in compliance with the Group maintains a significant interest. The Board also receives Code. After careful review the Board believes that J C Morgan is updates on the implementation and enforcement of the Group’s independent in character and judgement and that there are no Business Ethics Policy. relationships or circumstances that are likely to affect, or could appear to affect, his judgement. The company is not J C Morgan’s The Board receives appropriate and timely information from

primary source of income and he does not participate in any of management to enable it to perform its duties, including monthly Operational review its bonus, option or incentive schemes. J C Morgan’s experience, reports on financial and operational issues. knowledge of the energy sector and long term perspective on the Group’s activities and strategy continue to be valuable to the Group Induction and training and contribute significantly to the Board’s deliberations. The training needs of directors are periodically discussed at Board meetings and briefings arranged on issues relating to corporate governance. Newly appointed directors undertake an induction process designed to develop their knowledge and understanding of Board of Directors the Group’s business. This includes briefing sessions during regular Board meetings, visits to Group operating sites and discussion Composition and independence of relevant business issues. Upon their appointment, directors At 31 December 2008 the Board comprised fourteen directors, are advised of their legal and other duties and their obligations made up of seven executive and seven non-executive directors. as directors of a listed company. During the year the Board was

The Board has agreed a division of responsibilities between the Governance updated on the new conflicts of interest provisions of the Companies Chairman and the Chief Executive in compliance with the Code; Act 2006. Sir Ian Wood performs the role of Chairman and A G Langlands operates as Chief Executive Officer. Dr C Masters is the senior There is a procedure for any director to take independent independent director. professional advice at the Group’s expense and all directors have access to the services of the Company Secretary, who is responsible J B Renfroe was elected to the Board as an executive director on for ensuring that the Board’s procedures are followed. 26 February 2008. There is a formal and transparent procedure for the appointment of new directors to the Board which involves an Board performance evaluation evaluation of the balance of skills, knowledge and experience of the In 2008 the Board completed a formal evaluation of its own existing Board. Appointments are made on the recommendation of performance and of its committees, individual directors, and of the the Nominations Committee, following a selection process involving Chairman. This involved directors completing detailed questionnaires, the interview of a number of candidates and using the services of

the results of which were analysed by the Company Secretary. A Financial statements independent executive search consultants specialising in board level presentation of the results was made to the full Board. The results recruitment. were discussed both at a full Board meeting and separate meetings between each director and the Chairman. The non-executive The Board considers all of its non-executive directors to be directors, led by the senior independent director, are responsible for independent in character and judgement and that there are no the performance evaluation of the Chairman, taking into account the relationships or circumstances which are likely to affect, or could views of the executive directors. appear to affect, their judgement. Brief biographies of the directors appear on pages 42 and 43. Other than J C Morgan who is subject Conflicts of interest to annual re-election, all directors, executive and non-executive, The company has procedures in place to deal with conflicts of must submit themselves for election at the AGM following their interest and these procedures have operated effectively throughout appointment and, thereafter, for re-election at least once every three the year. years. 46 John Wood Group PLC Annual Report 2008

Governance Corporate governance

Committees of the Board • reviewing the terms of engagement and independence of the external auditors The Board has delegated some of its responsibilities to committees • assessing the audit process and the effectiveness of the external – the Audit Committee, the Remuneration Committee and the auditors to supply non audit services Nominations Committee. A summary of the work of the Audit • monitoring the Group policy on the engagement of the external Committee and the Nominations Committee is set out below, whilst auditors to supply non audit services the report of the Remuneration Committee is included in the Directors’ • reporting to the Board, identifying any matters in respect of which remuneration report on page 49. it considers that action or other improvement is needed and making recommendations as to the steps to be taken The Committees’ terms of reference are available on the Group’s website. Discharge of its responsibilities The Committee met three times in 2008. Attendance at committee Attendance by directors at the meetings of the Board and its meetings is at the invitation of the Chairman of the Committee; however committees is summarised below – the Group Finance Director, Group Financial Controller, Head of Internal Audit and the external auditors are generally invited to attend. The Head

Board Audit Remuneration Nominations of Internal Audit and the external auditors have the right of direct access Committee Committee Committee to the Chairman of the Committee at all times and met the Committee Number of meetings without management present during 2008. 7 3 2 1 held in 2008 Executive Directors During the year the Committee – • reviewed the Annual Report for 2007 and the Interim Report for Sir Ian Wood 7 – – 1 2008 AG Langlands 7 – – – • reviewed the effectiveness of the Group’s internal financial controls AG Semple 7 – – – • discussed with management and the external auditors significant LJ Thomas 6 – – – issues and areas of financial risk, accounting principles, practices MH Papworth 6 – – – and judgements M Straughen 7 – – – • considered with the external auditors the significant matters arising J B Renfroe 7 – – – from the annual external audit Non-executive • reviewed reports prepared by the internal audit function together Directors with management’s response and the actions taken • focused on complex or unusual transactions and judgemental Dr C Masters 7 3 – 1 areas R Monti 5 – – 1 JC Morgan 7 3 2 1 External auditor independence and non audit services DJ Ogren 7 – 2 1 The Committee has a key oversight role in respect to the engagement NH Smith 7 – 2 1 and ongoing relationship with the Group’s external auditor, ID Marchant 6 2 – 1 PricewaterhouseCoopers “PwC”, and has overall responsibility for D Woodward 7 3 – 1 ensuring that the external auditors’ independence and objectivity is not compromised. On each occasion when a director was unable to attend a Board meeting, they provided the reasons in advance to the Chairman and One of the key risks to external auditor independence is the provision were provided with copies of all Board papers, on which they were of non audit services by the external auditor. The Committee considers given the opportunity to comment. and approves fees in respect of non audit services provided by the external auditors in accordance with the Group’s policy in this area, which is set out in the Audit Committee’s terms of reference. The cost of Audit Committee non audit services provided in 2008 is reported in note 3 to the financial statements. In the opinion of the Committee, the provision of these non Committee composition and responsibilities audit services did not impair PwC’s independence. The Audit Committee comprises four independent non-executive directors, Dr. C Masters (Chairman), J C Morgan, I D Marchant and PwC has established policies and procedures to ensure that those D Woodward. in a position to influence the conduct of their audit act with integrity, In line with the requirements of the Code, the Board considers that objectivity and independence. PwC provides an annual confirmation I D Marchant has recent and relevant financial experience. The of their independence from the Group and, if there are any, details of Committee meets at least three times a year, and has written terms any relationship between them and the Group which could impact their of reference setting out its roles and responsibilities. objectivity and independence. No such relationships were noted in 2008. These responsibilities include • reviewing the effectiveness of the Group’s internal financial controls • monitoring the integrity of the Group’s financial statements and its interim and preliminary announcements • monitoring and assessing the effectiveness of the Group’s internal audit function

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 47

Nominations Committee Monitoring of the internal control systems – The Board has agreed certain reporting procedures to monitor key risk areas on Committee composition and responsibilities an ongoing basis, including health and safety, legal and financial The Nominations Committee consists of Sir Ian Wood (Chairman) matters. The Audit Committee has been delegated the responsibility and all of the independent non-executive directors. The Committee to review the effectiveness of the internal financial control systems meets at least once a year to review the Board structure, size and implemented by management. It is assisted by the internal auditors composition, make recommendations to the Board with regard to and, where appropriate, the external auditors. The Chairman of the any changes, to identify and nominate candidates for the approval Audit Committee regularly reports to the Board on their discussions. of the Board, to fill Board vacancies and to ensure that succession plans are in place. Information and communication – The Group has a At a glance comprehensive system for reporting performance to the Board. This Discharge of its responsibilities includes monthly and quarterly reports. The quarterly reports include The Committee met once during 2008. a detailed financial review against budgets, and, twice a year, revised forecasts. The executive directors also receive detailed monthly financial reports and meet on a monthly basis to discuss financial Internal Control performance and other operational matters. In addition, each division held Quarterly Review Meetings “QRMs” involving discussions with The Board is ultimately responsible for the Group’s system of internal senior managers and certain of the executive directors, including the control and for reviewing its effectiveness. Chief Executive.

The Board has established an ongoing process for identifying, As a result of these ongoing procedures the Boards’ assessment evaluating and managing the significant risks faced by the Group was that the internal control environment was operating effectively. Operational review that has been in place for the year under review and up to the date of approval of this annual report. The process is regularly reviewed by the Board and is in accordance with the revised guidance on Going concern internal controls published in October 2005 by the Turnbull review group: “Internal Control – Revised Guidance for Directors on the The Group’s business activities, together with the factors likely to Combined Code”. The Group, for the purposes of applying the affect its future development, performance and position are set out Turnbull Committee guidance referred to above, comprises John in the Operational Review on pages 6 to 25. The financial position of Wood Group PLC, its subsidiaries and joint ventures. the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review on pages 26 to 29. In addition, Any system of internal control is designed to manage rather than note 18 to the financial statements includes the Group’s objectives, eliminate the risk of failure to achieve business objectives and can policies and processes for managing its capital, its financial risk only provide reasonable and not absolute assurance against material management objectives, details of its financial instruments and Governance misstatement or loss. hedging activities, and its exposures to credit risk and liquidity risk.

The key elements of the ongoing procedures which the directors The Group has considerable financial resources together with the have established to review the effectiveness of the system of internal cash inflows generated from its existing activities as set out in note control on an annual basis include the following: 27 to the financial statements. As a consequence, the directors believe that the Group is well placed to manage its business risks Overall control environment – The Group has a clear organisational successfully despite the current uncertain economic outlook. structure for the control and monitoring of its businesses, including Having made the appropriate enquiries including a review of cash defined lines of responsibility and delegation of authority. The Group flow projections and key sensitivities, the directors consider, in has issued policies which define the standards of business conduct accordance with the Code, that the business is a going concern. and include Contract Risk Management and Review; Health, Safety Adequate resources exist for the Group to continue in operational and Environment; and Business Ethics. Consistent with the Business existence for the foreseeable future. For this reason they continue to

Ethics Policy, advice lines have been established to enable staff to adopt the going concern basis in preparing the financial statements. Financial statements raise ethical concerns in confidence. For further details please refer to the Ethics section of ‘Our business and the community’ on page 38.

Risk identification and management – The Board formally reviews the Group’s exposure to key business risks at least once a year including the controls in place and management action plans. In addition the Board receives regular updates from management on specific risks and actions. Each division’s management team is responsible for the process of identification and evaluation of significant operational, financial and compliance risks and for the design and operation of effective internal controls. For further details please refer to ‘Principal risks and uncertainties’ on pages 30 and 31. 48 John Wood Group PLC Annual Report 2008

Governance Corporate governance

Statement of directors’ responsibilities Each of the directors, whose names and functions are listed on page 42 and 43, confirms that, to the best of their knowledge: The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Group and the parent company • the Group financial statements, which have been prepared in financial statements in accordance with applicable law and regulations. accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company law requires the directors to prepare financial statements Group; and for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial • the directors’ report on page 44 includes a fair review of the Reporting Standards “IFRSs” as adopted by the European Union, and development and performance of the business and the position the parent company financial statements in accordance with applicable of the Group, together with a description of the principal risks and law and United Kingdom Accounting Standards (United Kingdom uncertainties that it faces. Generally Accepted Accounting Practice). The Group and parent company financial statements are required by law to give a true and fair So far as the directors are aware, there is no relevant audit information view of the state of affairs of the company and the Group and of the of which the company’s auditors are unaware. Relevant information is profit or loss of the Group for that period. defined as “information needed by the company’s auditors in connection with preparing their report.” Each director has taken all the steps that he In preparing those financial statements, the directors are required to: ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors • select suitable accounting policies and then apply them are aware of that information. consistently; • make judgements and estimates that are reasonable and prudent; • state that the Group financial statements comply with IFRSs as adopted by the European Union, and with regard to the parent company financial statements that applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and the Group and to enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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Governance Directors’ remuneration report

Letter from the Chairman of the Remuneration Committee

Dear Shareholder

The Remuneration Committee “the Committee” keeps under regular review the elements of the Wood Group senior management remuneration package. Its aim is to achieve a level and a mix which represents a fair and competitive reward with an appropriate balance between incentive and retention and an ability to attract high quality

people. The intention of the overall remuneration package is that it At a glance should deliver pay at around industry median levels for “on target” performance, with the potential for top quartile remuneration for This is the Board’s report to shareholders on directors’ remuneration exceptional performance. and covers both executive directors and non-executive directors. It has been prepared by the Remuneration Committee and has been The remuneration structure is base salary plus performance related approved by the Board. This report is subject to the approval of payment elements based on both annual and longer term sets shareholders at the Annual General Meeting “AGM”. of objectives. The base salary is set at a competitive level with comparable skill sets and responsibilities in other companies. The Contents annual bonus for executive directors is based on delivery of both corporate and personal objectives. A new rolling three year Long Letter from the Chairman of the Remuneration Committee Term Incentive Plan “LTIP” was approved by shareholders in 2007.

The first cycle under this LTIP runs from 2008 to 2010. A new three Operational review Part 1 Executive directors’ remuneration year cycle commences each year. a) Remuneration policy b) Summary of remuneration of executive directors in 2008 The Committee will be particularly conscious of changing market and c) Basic salary and benefits competitive circumstances in considering all aspects of remuneration d) Annual bonus over the coming period. The executive directors have themselves e) Long term incentives proposed that their base salary should be unchanged in 2009 and f) Pensions the Committee has accepted this. The Committee will keep under g) Service contracts careful review the operation of the LTIP for the 2008-10 and 2009-11 cycles, with the objective of maintaining appropriate incentive and Part 2 Non-executive directors’ remuneration maximising alignment with shareholders’ interests. a) Remuneration policy b) Annual fee structure Additionally, the Committee keeps under review the remuneration c) Remuneration of non-executive directors in 2008 policy for around 50 managers below executive director level. The Governance objectives of the policy here are broadly the same as for executive Part 3 Additional statutory and other disclosures directors, but with targets set to reflect individual manager’s sphere a) The Remuneration Committee of control. b) TSR performance graph c) Long term incentives i) Long Term Incentive Scheme “LTIS” ii) Long Term Incentive Plan “LTIP” iii) Long Term Retention Plan “LTRP” iv) Executive share option schemes John Morgan d) Share options table Chairman, Remuneration Committee e) Directors’ interests Financial statements

Unless otherwise noted, the disclosures in the Directors’ remuneration report are unaudited. 50 John Wood Group PLC Annual Report 2008

Governance Directors’ remuneration report

Part 1 Executive directors’ remuneration When considering remuneration policy, the Committee reviews the level of rewards that are offered by other companies, including companies 1a) Remuneration policy within comparable sectors and geography as well as companies of The aim of the Committee is to establish an overall remuneration comparable size and complexity in other sectors. Given that the Group structure which will operates in specialised and international markets, regard is also given to remuneration of peers within the same industry sector, which are often • attract, retain and motivate key executives based in the US. As directly comparable and precise data for these • reflect the size and complexity of the Group’s business comparator groups is often difficult to obtain, the Committee takes • consider executives’ individual responsibilities and advice from the Chairman and the Chief Executive. geographical location • clearly align remuneration with the Group’s long term strategy As noted above, one of the Committee’s key objectives is to align and maximising shareholder value the remuneration of executive directors with the long term strategy • consider executive remuneration within the broader setting of pay of the Group and with maximising shareholder value. In order to do conditions elsewhere within Wood Group this remuneration packages comprise fixed elements and variable, performance related, elements. The typical total remuneration package The Committee aims to reflect best practice wherever possible and, for each executive director therefore comprises a basic salary and in setting remuneration policy, gives full consideration to the relevant benefits, an annual cash bonus, a deferred bonus and participation in provisions of the Combined Code and the Directors’ Remuneration the Group’s long term incentive schemes. The main elements of each Report Regulations 2002. are summarised in the table below:

Purpose Performance period Methodology in determining award Basic salary Attraction and retention Not applicable Individual responsibilities and geographical location Benefits and pension Attraction and retention Not applicable Established market practice in relevant geographical areas Annual bonus To provide incentives to deliver One year, a portion of which is Achievement of financial and performance targets and deferred for two years personal performance targets encourage retention Long term incentive schemes To provide incentive to achieve Three years, a portion of which is Achievement of long term long term value for shareholders deferred for a further two years financial performance against and encourage retention predetermined targets

1b) Summary of remuneration of executive directors in 2008 (audited)

Summary of remuneration of UK executive directors in 2008

Basic salary (6) Annual bonus (1) Benefits (2), (3), (5) Total Cash bonus Deferred bonus £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Sir Ian Wood 250 295 110 133 110 133 14 13 484 574 A G Langlands 480 420 210 188 210 188 14 13 914 809 M H Papworth 305 290 127 133 127 133 32 35 591 591 M Straughen (4) 305 193 132 101 132 101 43 27 612 422 L J Thomas 305 290 134 129 134 129 32 30 605 578

Summary of remuneration of US executive directors in 2008

Basic salary (6) Annual bonus (1) Benefits (2) Total Cash bonus Deferred bonus $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 A G Semple 575 522 258 241 258 241 28 28 1,119 1,032 J B Renfroe (7) 422 – 209 – 209 – 23 – 863 –

(1) The bonus figures in the table above relate to amounts earned in respect of the year ended 31 December. The cash bonuses will be paid by 31 March in the following year. The deferred bonuses will be paid after a two year deferral period and are subject to forfeiture under certain circumstances. (2) Benefits vary between directors but typically include a cash allowance in lieu of a company car, private health and dental coverage. (3) Benefits paid to MH Papworth and LJ Thomas include cash payments in lieu of pension benefits above the scheme specific cap. (4) M Straughen joined the Board on 1 May 2007. (5) Benefits paid to M Straughen include a cash payment in lieu of pension benefits. (6) The only element of remuneration that is pensionable is salary. (7) J B Renfroe joined the Board on 26 February 2008.

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1c) Basic salary and benefits 1e) Long term incentives (audited) Salary levels are reviewed and approved annually by the Committee Long term incentive schemes play an important role in the retention which has decided to accept the proposal from the executive directors and motivation of executive directors and senior executives, consistent that their 2009 salaries should remain unchanged at the 2008 levels. with our goal of achieving shareholder value. In this respect the Group has put in place the following long term incentive schemes: The level of benefits typically provided includes a cash allowance in lieu of a company car, private health and dental coverage and some Long Term Incentive Scheme “LTIS”. Introduced in May 2005 for directors receive cash payments in lieu of pension benefits above the executive directors and around 35 senior executives, the LTIS UK scheme specific cap. M Straughen has elected to receive a cash provided incentives for performance over a three year period to 31 payment in lieu of pension payments. December 2007. Details of the LTIS are provided in note 3c)(i). At a glance

1d) Annual bonus The LTIS awards made to the executive directors during the 1 January Annual bonuses are based on a combination of: 2005 to 31 December 2007 performance cycle are shown in the table (i) financial performance (70%) – the Group’s financial below: performance is measured against annual budgets, comprising both an EBITA and a capital efficiency measure; and Shares Shares Shares (ii) personal objectives (30%) – performance is measured awarded awarded awarded annually against agreed personal objectives aimed at March March March achievement of the Group’s business goals, HSE targets, 2006 (1) 2007 (2) 2008 (3) strategy, people development and other CSR objectives. A G Langlands 97,598 139,845 392,694 A G Semple 92,701 132,830 281,913

The annual bonus is split into a cash component and a deferred Operational review component. The Committee has set the maximum cash bonus M H Papworth 27,901 105,432 359,818 potential for executive directors for 2008 and 2009 at 50% of basic L J Thomas 97,598 139,845 296,804 salary, and it will be paid by 31 March in the following year. (1) Vested and exercised in March 2008 (2) Vest in March 2009 A deferred bonus equal to the cash bonus is payable when EBITA (3) Vest in March 2010 growth over inflation is 5% or greater. A deferred bonus of 50% of the cash bonus is payable where EBITA growth over inflation is less than Long Term Incentive Plan “LTIP”. Introduced in April 2007 for executive 5%. All deferred bonuses are deferred for two years and are subject to directors and around 35 senior executives, this is a replacement for forfeiture in certain circumstances. the LTIS above and is designed to provide incentives for three year rolling performance cycles commencing 1 January 2008. Details of the Bonus payments are not part of pensionable earnings. LTIP are provided in note 3c)(ii). Governance During 2008, achievement of aggregate financial measures was 11% Long Term Retention Plan “LTRP”. Introduced in 2003, the LTRP was above budget and overall individual bonus payments including the designed to align rewards to financial performance and results in the deferred element ranged from 83% to 91% of base salary. awarding of Wood Group par value options to participants. Since the introduction of the LTIS this scheme has primarily been aimed at a group of around 350 employees in the layer below those participating in the LTIS. Details of the LTRP are provided in note 3c)(iii) and details of the awards made are disclosed in 3d).

Executive Share Option Schemes. Established in 2002, the executive share option schemes provide for the grant of options to executive directors and senior executives. No awards have been made to executive directors since 2005. Full details of the executive share option schemes are provided in note 3c)(iv) and details of the awards Financial statements made are disclosed in 3d).

Sir Ian Wood does not participate in any of the long term incentive schemes. 52 John Wood Group PLC Annual Report 2008

Governance Directors’ remuneration report

1f) Pensions (audited)

Pension benefits to UK based executive directors The benefits and terms for the UK based executive directors who are active members of the John Wood Group PLC Retirement Benefit Scheme “JWG RBS”, which is a defined benefit pension scheme, are shown in the following table. With effect from 6 April 2007 future benefits within the JWG RBS were provided on a Career Average Revalued Earnings “CARE” basis.

Retirement Employee contributions Life assurance Accrual Death in service age rate benefits A G Langlands 60 Non Contributory 4 x basic salary 1/40th Two-thirds M H Papworth 65 7.5% of pensionable salary, subject to pension cap 4 x basic salary 1/60th One-half L J Thomas 65 7.5% of pensionable salary, subject to pension cap 4 x basic salary 1/60th One-half

A scheme specific pensionable earnings cap of £118,800 was set in April 2008 escalating at Retail Price Index “RPI” plus 1.25% per annum. Pension increases are set at the rate of increase in RPI capped at 5% per annum for service from 6 April 1997 to 30 June 2005, and the rate of increase in RPI, capped at 2.5% per annum for service from 1 July 2005. Death in service benefits entitle the surviving spouse or dependants to a pension based on a percentage of that which would have been received at normal retirement date based on final pensionable salary at the date of death. Benefits provided to A G Langlands in excess of the scheme specific pension cap are provided by way of an unfunded, unapproved arrangement. Final pensionable salary is capped from 6 April 2008 at £425,000 per annum increasing at RPI plus 1.25%. M H Papworth and L J Thomas receive a cash contribution in lieu of pension benefits above the scheme specific cap equal to 10% of the difference between base salary and the level of pension cap. M Straughen receives a cash payment of 10% of base salary in lieu of pension provision.

Sir Ian Wood ceased to be an active member of the Scheme during 2007.

The directors below had the following accrued entitlements under the JWG RBS at 31 December 2008. For A G Langlands the figures include entitlements under unfunded, unapproved schemes.

Increase in Accumulated total accrued Accumulated total accrued annual Increase in accrued annual accrued pension annual pension at Age at 31 pension at 31 December 2007 pension (including inflation) (excluding inflation) 31 December 2008 December 2008 £’000 £’000 £’000 £’000 A G Langlands 50 127 59 55 186 M H Papworth 43 5 2 2 7 L J Thomas 51 7 2 2 9

Transfer value of increase in Transfer value of Increase in transfer value Transfer value of pension entitlement accrued benefit at of pension entitlement less Member accrued benefit at (excluding inflation) 31 December 2007 member contributions contributions 31 December 2008 £’000 £’000 £’000 £’000 £’000 A G Langlands 1,160 2,418 1,667 – 4,085 M H Papworth 21 53 17 9 79 L J Thomas 27 88 28 9 125

Pension benefits to US based executive directors Increase in Accumulated total accrued Accumulated total accrued annual Increase in accrued annual accrued pension annual pension Age at 31 pension at 31 December 2007 pension (including inflation) (excluding inflation) at 31 December 2008 December 2008 $’000 $’000 $’000 $’000 A G Semple 49 102 14 11 116

Transfer value of increase in Transfer value of Increase in transfer value Transfer value of pension entitlement accrued benefit at of pension entitlement less Member accrued benefit at (excluding inflation) 31 December 2007 member contributions contributions 31 December 2008 $’000 $’000 $’000 $’000 $’000 A G Semple 229 2,041 266 40 2,347

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US based executive directors are entitled to participate in the Wood Group 401k plan which is a defined contribution scheme. In addition they are entitled to participate in a Non-Qualified Deferred Compensation Plan which provides a company contribution based upon the level of employee deferrals.

A G Semple is provided with a pension arrangement of a defined benefit nature, providing an equivalent level of benefits to that provided in the JWG RBS. If he dies in pensionable service, his surviving spouse or dependants are entitled to a pension of half of the pension that would have been received at normal retirement date based on the final pensionable salary at the date of death. Final pensionable salary is capped from 6 April 2008 at $536,562 per annum, increasing at RPI plus 1.25%.

J B Renfroe’s benefits are provided in defined contribution form. During the year the Group’s contribution on his behalf to a 401k plan amounted At a glance to $11,500 (2007: nil)

A G Semple and J B Renfroe are provided with life assurance cover of approximately four times basic salary.

1g) Service contracts Nominations Committee per annum. Non-executive directors do Contract date Notice Period not participate in the Group’s annual bonus, share option, LTRP, LTIS, LTIP or pension plans. The non-executive directors have each Sir Ian Wood 1 May 2002 12 months entered into letters of engagement addressing remuneration, services A G Langlands 1 May 2002 12 months to be provided, conflicts of interest and confidentiality. Subject

to the requirement for retirement by rotation under the Articles of Operational review A G Semple 1 May 2002 12 months Association, the letters of engagement do not have fixed terms and M H Papworth 16 January 2006 12 months are terminable with 90 days written notice. J B Renfroe 28 January 2008 6 months 2b) Annual fee structure M Straughen 23 April 2007 6 months Annual directors’ fee £40,000 L J Thomas 19 May 2004 12 months Committee attendance fee £1,000 per meeting It is the Committee’s view that these contractual notice periods With effect from 1st January 2008, non-executive directors can elect continue to be appropriate and in line with current best practice. to be paid in either pounds sterling or in US dollars at the applicable None of the service contracts provide for pre-determined amounts exchange rate at the time of payment. There are no changes to the of compensation in the event of early termination. On termination of Governance structure or level of non-executive directors’ fees for 2009. service contracts by the Group, in certain circumstances executive directors are entitled to the payment of their salary and benefits in kind provided that they will be subject to a general duty to mitigate their loss. Equity awards on termination are treated in accordance 2c) Remuneration of non-executive directors in 2008 (audited) with the plan rules. Within contractual constraints, the Committee will endeavour to ensure that executive directors do not receive such Annual Committee 2008 2007 directors fee attendance Total Total(2) payments if they believe that their performance has had a detrimental £’000 £’000 £’000 £’000 effect on shareholder value. Dr C Masters 40 4 44 36 Executive directors are not permitted to accept external directorships I D Marchant 40 3 43 36 or other significant appointments without the Chief Executive’s prior J C Morgan 40 6 46 38 consent and, in the case of the Chief Executive, the Chairman’s (1) Financial statements consent. D Woodward 40 4 44 22 R Monti 40 1 41 28 Part 2 Non-executive directors’ remuneration D J Ogren 40 3 43 28 2a) Remuneration policy N H Smith 40 3 43 28 Non-executive directors are paid directors’ fees, which reflect the commitment expected of them, and are reimbursed all necessary and (1) Appointed 23 May 2007 reasonable expenses in the performance of their duties. Additional (2) In 2007, certain directors were paid an agreed fee in US dollars. These fees are paid in respect of attendance at each Remuneration have been converted for comparative purposes at an exchange rate of Committee, Audit Committee and for one paid meeting of the US$1.99/£1.00. 54 John Wood Group PLC Annual Report 2008

Governance Directors’ remuneration report

Part 3 Additional statutory and other disclosures participants cease to be employed in the Group (except in certain specified circumstances) within the deferral period. During that time 3a) The Remuneration Committee participants may not exercise any voting rights and cannot sell or The Committee advises the Board on executive remuneration and sets transfer any restricted shares awarded to them. However, participants the remuneration packages of each of the executive directors. The receive dividends paid to ordinary shareholders after the award date. Committee has a written charter and is comprised solely of independent non-executive directors. During the year, the members were JC Morgan (ii) Long Term Incentive Plan “LTIP” (Chairman), R Monti, DJ Ogren and NH Smith. The Committee charter is The John Wood Group PLC Long Term Incentive Plan 2008 “the publicly available on the Group’s website. LTIP scheme” was approved by the shareholders at the 2007 AGM and is based on three year rolling performance cycles, with the first At the invitation of the Chairman of the Committee, Sir Ian Wood cycle beginning on 1 January 2008 “2008 cycle”. The second cycle and AG Langlands attended meetings in 2008, except when their commenced on 1 January 2009 “2009 cycle”, and it is anticipated that own remuneration was being discussed, to provide advice on setting a new performance cycle will begin on each succeeding 1 January until remuneration for other executive directors. In addition, the Group’s Head 2012. of Human Resources provided advice to the Committee. Participation in the LTIP scheme is limited to executive directors and 3b) TSR performance graph those other key senior executives who, in the opinion of the Committee, As the Company is listed in the UK FTSE 250 index, by way of providing are able to materially influence the achievement of the Group’s long term a reasonable Total Shareholder Return “TSR” comparison, the graph business goals. Initially, the Group executive directors and around 35 below compares the Total Shareholder Return on a holding of shares in key senior executives were invited to participate. John Wood Group PLC with the Total Shareholder Return on a holding of shares in the companies in the UK FTSE 250 index for the last five It is intended that awards will be a combination of shares and restricted financial years. shares. The inclusion of a provision that 20% of any award earned 400 over the performance cycle must be deferred for a further two years, in forfeitable restricted shares, is intended to provide encouragement 350 for key executive talent to remain with the Group in the long term. The

300 2008 cycle for executive directors is based at a maximum of 125% of base salary, and the market value of a Wood Group ordinary share at 250 the beginning of the performance cycle. From the second performance cycle the Committee has the discretion to increase the maximum level 200 of an award, if this is deemed necessary to maintain a competitive

150 remuneration package, up to a level of 150% of base salary.

100 The LTIP scheme contains separate performance measures for executive directors and key senior executives. The performance 50 measures have been chosen in light of their appropriateness to the 31-Dec-03 31-Dec-04 31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08 strategic objectives of the Group, and targets will be set against these – John Wood Group PLC – UK FTSE 250 Index measures at the commencement of each performance cycle. During the Source: Datastream course of a performance cycle, the Committee will have the discretion to adjust the achievement levels, but only so that the new levels are considered as demanding as those first set. 3c) Long Term incentives All shares and options issued under the following long term incentives The measurement criteria for executive directors are as follows – operate, in aggregate, within the Association of British Insurers “ABI” dilution limits in terms of the issue of new shares. Total Shareholder Return “TSR” – 25% of performance incentive

(i) Long Term Incentive Scheme “LTIS” The TSR of the Group for the 2008 and 2009 cycles is compared to The Committee introduced the LTIS for executive directors (excluding a peer group comprising of Aker Kvaerner, AMEC, Baker Hughes, the Chairman) and around 35 key senior executives in 2005. Cameron International, Fluor, FMC, Foster Wheeler, Halliburton, Jacobs Participation in the LTIS was limited to executive directors and those Engineering, KBR, National Oilwell Varco, Petrofac, Saipem, SBM other key senior executives who, in the opinion of the Committee, were Offshore, Schlumberger, Sulzer, Technip, Weatherford International, The able to materially influence the achievement of the Group’s long term Weir Group and Worley Parsons. The Committee has the discretion to business goals. The LTIS and the proposed parameters of its operation choose and amend the peer group and during 2008 two companies were approved by shareholders at the 2005 AGM. previously included were removed from the peer group following their delisting. In the 2008 and 2009 cycles no awards will be made for less Performance was measured in relation to a performance cycle of three than the ‘threshold’ performance, or 50th percentile. On reaching the financial years commencing on 1 January 2005 and ending on 31 ‘threshold’, one third of the TSR related element will become payable December 2007. Interim share awards were made after the end of the and on reaching the ‘maximum’ performance, or 75th percentile, 100% first and second financial years and a final award was made in March of the TSR element will become payable. For achievement level between 2008. ‘threshold’ and ‘maximum’ performance the allocation will be on a straight line basis. Share awards were in the form of restricted shares and are deferred for two years after the award date. They are subject to forfeiture if

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 55

Adjusted Diluted Earnings per Share “AEPS” – 75% of performance The level of share awards from the notional bonus pool to an individual incentive will be calculated based on the market value of the shares at the time of grant. The method of granting these share awards will be by way Directors will be measured on the absolute increase in AEPS year of par value options, which will be exercisable between the fourth and on year, taking into account inflation. The targets for the 2008- fifth anniversary of grant. In the absence of exceptional circumstances, 2010 cycle were set at RPI plus 5% at the ‘threshold’, when one the LTRP Scheme rules set one times annual salary as a maximum third of the AEPS element will become payable, and RPI plus 15% individual award from the notional bonus pool, although it is the at the ‘maximum’, when 100% of the AEPS element will become Committee’s intention that individual awards would not normally be payable. For achievement levels between ‘threshold’ and ‘maximum’ more than 50% of annual salary. performance the allocation will be on a straight line basis. The global At a glance economic recession and very significant movement in the oil price are (iv) Executive share option schemes clearly exceptional circumstances and the Committee may consider The Group adopted the John Wood Group PLC (No 1) 2002 Executive it appropriate to relook at the targets during 2009, subject always Share Option Scheme and the John Wood Group PLC (No 2) 2002 to the reward levels being reduced and any revised targets being as Executive Share Option Scheme (the “Share Option Schemes”) after demanding in the changed circumstances as the targets originally set. approval by the shareholders on the listing of the Group in June 2002.

In view of the high current level of uncertainty in the market, the Options granted under the Share Option Schemes are exercisable Committee has decided to delay setting the performance targets for between four and ten years from the grant date and options granted the 2009-2011 cycle until later in 2009. to executive directors are subject to the achievement of performance criteria. No awards will be made under the scheme unless the Committee is satisfied that the underlying competitive performance of the company The current performance criteria for executive directors in the Share Operational review justifies this. Option Schemes is that annualised earnings per share growth over the measurement period must be an average of 3% per annum greater The performance measures for other key executives are based than the percentage increase, if any, in the RPI, over that period. The on specific measures for the areas of business for which they are measurement period is a period of four consecutive financial years, responsible. starting from the financial year commencing immediately before the date of grant.

(iii) Long Term Retention Plan “LTRP” The operation of the Share Option Schemes is subject to ongoing The John Wood Group PLC (No 1) 2003 Long Term Retention Plan, review by the Committee with regard to eligibility, level of allocation the John Wood Group PLC (No 2) 2003 Long Term Retention Plan and frequency of issue, taking into account the practice of comparable “the LTRP schemes” and the proposed parameters of their operation companies. There are currently around 550 participants across the were approved by shareholders at the 2003 AGM. There are currently Group. around 350 participants, including executive directors, across the Governance Group. No grants have been made to executive directors under the Share Option Schemes since May 2005. An LTRP award of 100,000 options was made to M H Papworth in 2008 as part of a pre-employment contractual commitment. An LTRP award of 50,000 options was made to M Straughen in 2008 as he was ineligible to participate in the LTIS scheme. Details of options issued under the LTRP are included in the table at 3d) below.

The basis of the LTRP schemes is that an overall bonus pool is calculated annually based on growth in the Group’s AEPS in the prior year. Under the market conditions pertaining up to the end of 2008,

there is no bonus pool if the prior year AEPS growth was under the Financial statements threshold of RPI plus 3%, with the maximum bonus pool paid, at an equivalent value to 5% of EBTA (earnings before tax, amortisation and non-recurring items) if the AEPS meets or exceeds RPI plus 10% in the prior year. The Committee are currently considering reviewing this for the 2009 year, in light of the changed market circumstances. In setting limits the Committee is of the view that they should be challenging but achievable.

To increase the retention value and to align with shareholder interests the annual awards from this notional bonus pool will be made wholly in shares under the LTRP Schemes, which vest four years after award and will lapse under certain circumstances. 56 John Wood Group PLC Annual Report 2008

Governance Directors’ remuneration report

3d) Share options table (audited) Date of grant Earliest exercise Expiry date Exercise Market value Number as at Granted Exercised in Number as at date price at date of 1st January in 2008 2008 31st December (per share) exercise 2008 2008 (per share) A G Langlands LTRP 02/07/2003 02/07/2007 02/07/2008 3 1/3p 455p 45,008 – 45,008 – Executive 30/09/2003 30/09/2007 30/09/2013 158p – 100,000 – – 100,000 Executive 02/04/2004 02/04/2008 02/04/2014 128 1/2p – 200,000 – – 200,000 345,008 – 45,008 300,000 A G Semple Executive 02/04/2004 02/04/2008 02/04/2014 128 1/2p – 175,000 – – 175,000 175,000 – – 175,000 L J Thomas Executive 02/04/2004 02/04/2008 02/04/2014 128 1/2p – 100,000 – – 100,000 LTRP 01/11/2004 01/11/2008 01/11/2009 3 1/3p 240p 50,000 – 50,000 – LTRP 18/04/2005 18/04/2009 18/04/2010 3 1/3p – 50,000 – – 50,000 Executive 19/05/2005 19/05/2009 19/05/2015 145p – 100,000 – – 100,000 300,000 – 50,000 250,000 M H Papworth – LTRP 18/04/2005 18/04/2009 18/04/2010 3 1/3p – 50,000 – – 50,000 LTRP 12/04/2006 12/04/2010 12/04/2011 3 1/3p – 50,000 – – 50,000 LTRP 30/03/2007 30/03/2011 30/03/2012 3 1/3p – 100,000 – – 100,000 LTRP 25/03/2008 25/03/2012 25/03/2013 3 1/3p – – 100,000 – 100,000 200,000 100,000 – 300,000 M Straughen LTRP 25/03/2008 25/03/2012 25/03/2013 3 1/3p – – 50,000 – 50,000 – 50,000 – 50,000

The market price of the Company’s shares at 31 December 2008 was 188.25p and the range of closing market prices from 1 January to 31 December 2008 was 155.7p to 494.5p. The market price of the LTRP share awards granted on 25 March 2008 was 383p.

3e) Directors’ interests Details of the directors who held office during the year and up to the date of this report are set out on pages 42 and 43.

Details of directors’ interests in the ordinary shares of the Company at 31 December 2008 were:

Beneficial interest 1 January 2008 31 December 2008 At the date of this report the interests of the directors in the shares of the Company remain as stated. Sir Ian Wood 28,439,387 31,154,768 A G Langlands (1) 1,687,443 2,282,539 Directors’ interests in options over ordinary shares at 31 December A G Semple (1) 925,531 1,164,743 2008 are set out in section 3(d) of this report. M H Papworth (1) 137,473 478,096 None of the directors has a material interest in any contract, other J B Renfroe – 10,000 than a service contract, with the Company or any of its subsidiary M Straughen 3,055 23,055 undertakings, other than disclosed in note 34 to the financial L J Thomas (1), (2) 337,443 586,649 statements. Dr C Masters 30,000 30,000 R Monti 30,000 30,000 There is no requirement for directors to hold an interest in the company. J C Morgan 30,000 41,050 (1) Including conditional LTIS awards granted during 2008 as set out in section 1(e) of this report. D J Ogren 55,000 80,000 (2) includes 100,000 shares transferred by Sir Ian Wood from his beneficial holding to the I D Marchant 10,000 10,000 Trustees of Sir Ian Wood’s 2005 Trust for L J Thomas, who had the right to one-third of these shares on 9 June 2006 and 9 June 2007, and had the right to the last third on 9 June 2008. D Woodward – 27,000 N H Smith – – Non-beneficial Interest Sir Ian Wood 59,941,473 59,941,743

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 57

Group financial statements At a glance

Contents

Group financial statements 58 Independent auditors’ report 60 Consolidated income statement 61 Consolidated statement of recognised income and expense 62 Consolidated balance sheet 63 Consolidated cash flow statement

64 Notes to the financial statements Operational review

Company financial statements 106 Independent auditors’ report 108 Company balance sheet 109 Notes to the company financial statements

Additional information 119 Five year summary 120 Shareholder information Governance Financial statements 58 John Wood Group PLC Annual Report 2008

Independent auditors’ report to the members of the John Wood Group PLC

We have audited the group financial statements of John Wood Group PLC for the year ended 31 December 2008 which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Recognised Income and Expense and the related notes. These group financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements of John Wood Group PLC for the year ended 31 December 2008 and on the information in the Directors’ Remuneration Report that is described as having been audited.

Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the group financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the group financial statements give a true and fair view and whether the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Report of the Directors is consistent with the group financial statements. The information given in the Report of the Directors includes that specific information presented in the Operational and Financial Reviews that is cross referred from the Principal Activities and Business Review section of the Report of the Directors.

In addition we report to you if, in our opinion, we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We review whether the Corporate Governance Statement reflects the group’s compliance with the nine provisions of the Combined Code (2006) specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider whether it is consistent with the audited group financial statements. The other information comprises the Report of the Directors, the Chairman’s Statement, the Operational and Financial Reviews, the Corporate Governance Statement and all other information listed on the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 59

Opinion In our opinion:

• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2008 and of its profit and cash flows for the year then ended;

• the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and

• the information given in the Report of the Directors is consistent with the group financial statements. At a glance

PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Aberdeen 2 March 2009

Notes: Operational review (a) The maintenance and integrity of the John Wood Group PLC website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Governance Financial statements 60 John Wood Group PLC Annual Report 2008

Consolidated income statement for the year to 31 December 2008

2008 2007 Note $m $m

Revenue 1 5,243.1 4,432.7 Cost of sales (4,071.7) (3,506.4)

Gross profit 1,171.4 926.3

Administrative expenses (755.6) (618.5) Profit on disposal of interest in joint venture 4 – 3.6 Impairment and restructuring charges 5 – (26.2)

Operating profit 1 415.8 285.2

Finance income 2 6.0 7.4 Finance expense 2 (37.7) (32.7)

Profit before taxation 3 384.1 259.9

Taxation 6 (128.7) (91.0)

Profit for the year 255.4 168.9

Attributable to: Equity shareholders 251.6 165.0 Minority interest 26 3.8 3.9

255.4 168.9

Earnings per share (expressed in cents per share) Basic 8 49.6 33.0 Diluted 8 48.1 31.7

The notes on pages 64 to 104 are an integral part of these consolidated financial statements

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 61

Consolidated statement of recognised income and expense for the year to 31 December 2008

2008 2007 Note $m $m

Profit for the year 255.4 168.9

Actuarial (losses)/gains on retirement benefit liabilities 30 (18.7) 2.6 Movement in deferred tax relating to retirement benefit liabilities 5.2 (0.8) At a glance Cash flow hedges (7.5) (3.5) Tax on foreign exchange losses recorded in reserves – 0.3 Tax credit relating to share schemes 6.2 – Exchange movements on retranslation of foreign currency net assets (45.9) 7.0

Total recognised income for the year 194.7 174.5

Total recognised income for the year is attributable to: Equity shareholders 190.9 170.6 Minority interest 3.8 3.9 Operational review

194.7 174.5

The notes on pages 64 to 104 are an integral part of these consolidated financial statements Governance Financial statements 62 John Wood Group PLC Annual Report 2008

Consolidated balance sheet as at 31 December 2008

2008 2007 Note $m $m Assets Non-current assets Goodwill and other intangible assets 9 632.2 576.1 Property plant and equipment 10 263.0 272.3 Long term receivables 9.5 2.8 Derivative financial instruments 18 – 0.8 Deferred tax assets 20 53.3 51.1 958.0 903.1

Current assets Inventories 12 591.4 539.2 Trade and other receivables 13 1,034.2 894.9 Income tax receivable 12.3 15.5 Derivative financial instruments 18 7.2 0.7 Gross assets held for sale 28 22.9 – Cash and cash equivalents 14 176.1 117.1 1,844.1 1,567.4 Liabilities Current liabilities Borrowings 16 34.2 45.1 Derivative financial instruments 18 4.1 1.5 Trade and other payables 15 965.3 891.6 Income tax liabilities 53.4 46.4 Gross liabilities held for sale 28 4.8 - 1,061.8 984.6 Net current assets 782.3 582.8

Non-current liabilities Borrowings 16 390.7 349.9 Derivative financial instruments 18 8.1 1.2 Deferred tax liabilities 20 4.5 5.6 Retirement benefit liabilities 30 23.1 11.3 Other non-current liabilities 17 121.9 95.3 Provisions 19 45.0 36.7 593.3 500.0 Net assets 1,147.0 985.9 Shareholders’ equity Share capital 22 26.2 26.0 Share premium 23 311.8 303.6 Retained earnings 24 760.2 555.9 Other reserves 25 35.7 89.1 Total shareholders’ equity 1,133.9 974.6 Minority interest 26 13.1 11.3 Total equity 1,147.0 985.9

The financial statements on pages 60 to 104 were approved by the board of directors on 2 March 2009.

Allister G Langlands, Director Alan G Semple, Director

The notes on pages 64 to 104 are an integral part of these consolidated financial statements

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 63

Consolidated cash flow statement for the year to 31 December 2008

2008 2007 Note $m $m

Cash generated from operations 27 353.5 339.0 Tax paid (112.1) (105.9)

Net cash from operating activities 241.4 233.1 At a glance

Cash flows from investing activities Acquisition of subsidiaries (net of cash and borrowings acquired) 28 (85.4) (112.0) Acquisition of minority interests – (0.2) Deferred consideration payments 28 (26.8) (13.6) Proceeds from disposal of businesses (net of cash and borrowings disposed) 28 32.5 9.0 Purchase of property plant and equipment (83.5) (80.8) Proceeds from sale of property plant and equipment 9.9 4.2 Purchase of intangible assets (19.1) (11.8) Proceeds from disposal of other intangible assets 0.4 0.2 Investment by minority shareholders 26 0.1 1.4 Operational review

Net cash used in investing activities (171.9) (203.6)

Cash flows from financing activities Proceeds from issue of ordinary shares (net of expenses) – 0.2 Proceeds from/(repayment of) bank loans 105.7 (18.1) Purchase of shares in employee share trusts (34.2) - Disposal of shares in employee share trusts 10.5 16.2 Interest received 4.6 5.8

Interest paid (33.6) (32.0) Governance Dividends paid to shareholders 7 (40.1) (27.6) Dividends paid to minority shareholders 26 (1.9) (1.5)

Net cash from/(used in) financing activities 11.0 (57.0)

Effect of exchange rate changes on cash and cash equivalents (21.5) 4.3

Net increase/(decrease) in cash and cash equivalents 59.0 (23.2)

Opening cash and cash equivalents 117.1 140.3 Financial statements

Closing cash and cash equivalents 14 176.1 117.1

The notes on pages 64 to 104 are an integral part of these consolidated financial statements 64 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

Accounting Policies

Basis of preparation These financial statements have been prepared in accordance with IFRS and IFRIC interpretations adopted by the European Union (‘EU’) and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The Group financial statements have been prepared on a going concern basis under the historical cost convention as modified by the revaluation of financial assets and liabilities held for trading.

Significant accounting policies The Group’s significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Basis of consolidation The Group financial statements are the result of the consolidation of the financial statements of the Group’s subsidiary undertakings from the date of acquisition or up until the date of disposal as appropriate. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies and generally accompanies a shareholding of more than one half of the voting rights. The Group’s interests in joint ventures are accounted for using proportional consolidation. Under this method the Group includes its share of each joint venture’s income, expenses, assets, liabilities and cash flows on a line by line basis in the consolidated financial statements. Transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint venture. All Group companies apply the Group’s accounting policies and prepare financial statements to 31 December.

Critical accounting judgments and estimates The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Where significant estimates or assumptions have been applied in estimating balances in the financial statements, these have been disclosed in the elevantr notes to those balances. Significant judgments and estimates in these financial statements have been made with regard to goodwill impairment testing (note 9), trade receivables (note 13), provisions (note 19), deferred tax balances (note 20), share based charges (note 21) and retirement benefit liabilities (note 30). An explanation of key uncertainties or assumptions used by management in accounting for these items is explained where material in the respective notes.

Functional currency The Group’s earnings stream is primarily US dollars and the principal functional currency is the US dollar, being the most representative currency of the Group. The Group’s financial statements are therefore prepared in US dollars.

The following exchange rates have been used in the preparation of these accounts:

2008 2007 Average rate £1 = $ 1.8484 1.9995 Closing rate £1 = $ 1.4378 1.9906

Foreign currencies Income statements of entities whose functional currency is not the US dollar are translated into US dollars at average rates of exchange for the period and assets and liabilities are translated into US dollars at the rates of exchange ruling at the balance sheet date. Exchange differences arising on translation of net assets in such entities held at the beginning of the year, together with those differences resulting from the restatement of profits and losses from average to year end rates, are taken to the currency translation reserve.

In each individual entity, transactions in overseas currencies are translated into the relevant functional currency at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet date. Any exchange differences are taken to the income statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the balance sheet date.

The directors consider it appropriate to record sterling denominated equity share capital in the accounts of John Wood Group PLC at the exchange rate ruling on the date it was raised.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 65

Notes to the financial statements for the year to 31 December 2008

Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised only when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue can be measured reliably. Revenue from services is recognised as the services are rendered, including where they are based on contractual rates per man hour in respect of multi- year service contracts. Incentive performance revenue is recognised upon completion of agreed objectives. Revenue from product sales is recognised when the significant risks and rewards of ownership have been transferred to the buyer, which is normally upon delivery of products and customer acceptance, if any. Where revenue relates to a multi-element contract, then each element of the contract is accounted for separately. Revenue is stated net of sales taxes and discounts.

Revenue on lump-sum contracts for services, construction contracts and fixed price long term service agreements is recognised according to At a glance the stage of completion reached in the contract by reference to the value of work done. An estimate of the profit attributable to work completed is recognised once the outcome of the contract can be estimated reliably. Expected losses are recognised in full as soon as losses are probable. The net amount of costs incurred to date plus recognised profits less the sum of recognised losses and progress billings is disclosed as trade receivables/trade payables.

Goodwill The Group uses the purchase method of accounting to account for acquisitions. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is carried at cost less accumulated impairment losses.

Other intangible assets Intangible assets are carried at cost less accumulated amortisation. Intangible assets are recognised if it is probable that there will be future

economic benefits attributable to the asset, the cost of the asset can be measured reliably, the asset is separately identifiable and there is control Operational review over the use of the asset. Where the Group acquires a business, other intangible assets such as customer contracts are identified and evaluated to determine the carrying value on the acquisition balance sheet. Intangible assets are amortised over their estimated useful lives, as follows:

Computer software 3 – 5 years Other intangible assets 1 – 10 years

Property plant and equipment Property plant and equipment (PP&E) is stated at cost less accumulated depreciation and impairment. No depreciation is charged with respect to freehold land and assets in the course of construction. Transfers from PP&E to current assets are undertaken at the lower of cost and net realisable value.

Depreciation is calculated using the straight line method over the following estimated useful lives of the assets: Governance

Freehold and long leasehold buildings 25 – 50 years Short leasehold buildings period of lease Plant and equipment 3 – 10 years

When estimating the useful life of an asset group, the principal factors the Group takes into account are the durability of the assets, the intensity at which the assets are expected to be used and the expected rate of technological developments.

Impairment The Group performs impairment reviews in respect of PP&E and other intangible assets whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. In addition, the Group carries out annual impairment reviews in respect of goodwill. An

impairment loss is recognised when the recoverable amount of an asset, which is the higher of the asset’s fair value less costs to sell and its Financial statements value in use, is less than its carrying amount.

For the purposes of impairment testing, goodwill is allocated to the appropriate cash generating unit (“CGU”). The CGUs are aligned to the structure the Group uses to manage its business. Cash flows are discounted in determining the value in use. 66 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

Accounting Policies

Inventories Inventories, which include materials, work in progress and finished goods and goods for resale, are stated at the lower of cost and net realisable value. Product based companies determine cost by weighted average cost methods using standard costing to gather material, labour and overhead costs. These costs are adjusted, where appropriate, to correlate closely the standard costs to the actual costs incurred based on variance analysis. Service based companies’ inventories consist of spare parts and other consumables. Serialised parts are costed using the specific identification method and other materials are generally costed using the first in, first out method.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling expenses. Allowance is made for obsolete and slow-moving items, based upon annual usage.

Cash and cash equivalents Cash and cash equivalents include cash in hand and other short-term bank deposits with maturities of three months or less and bank overdrafts where there is a right of set-off. Bank overdrafts are included within borrowings in current liabilities where there is no right of set-off.

Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The provision is determined by reference to previous experience of recoverability for receivables in each market in which the Group operates.

Trade payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost.

Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost.

Deferred consideration Where it is probable that deferred consideration is payable on the acquisition of a business based on an earn out arrangement, an estimate of the amount payable is made at the date of acquisition and reviewed regularly thereafter, with any change in the estimated liability being reflected in goodwill. Where deferred consideration is payable after more than one year the estimated liability is discounted using an appropriate rate of interest.

Taxation The tax charge represents the sum of tax currently payable and deferred tax. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from the profit reported in the income statement due to items that are not taxable or deductible in any period and also due to items that are taxable or deductible in a different period. The Group’s liability for current tax is calculated using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax is provided, using the full liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from depreciation on PP&E, tax losses carried forward and, in relation to acquisitions, the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted, or substantially enacted, by the balance sheet date are used to determine deferred tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

Accounting for derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date the contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); (2) hedges of highly probable forecast transactions (cash flow hedge); or (3) hedges of net investments in foreign operations (net investment hedge).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 67

Notes to the financial statements for the year to 31 December 2008

Where hedging is to be undertaken, the Group documents the relationship between the hedging instrument and the hedged item at the inception of the transaction, as well as its risk management objective and strategy for undertaking the hedge transaction. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Group performs effectiveness testing on a quarterly basis.

(a) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in administrative expenses in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. At a glance (b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the hedging reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in administrative expenses in the income statement. Amounts accumulated in equity are recycled through the income statement in periods when the hedged item affects profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

(c) Net investment hedge Operational review Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in the currency translation reserve in equity; the gain or loss relating to the ineffective portion is recognised immediately in administrative expenses in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.

(d) Derivatives that are not designated as hedges Certain derivatives, whilst providing effective economic hedges are not designated as hedges. Changes in the fair value of any derivative instruments that are not designated for hedge accounting are recognised immediately in administrative expenses in the income statement.

Fair value estimation The fair value of interest rate swaps is calculated as the present value of their estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward foreign exchange market rates at the balance sheet date. The carrying values of trade Governance receivables and payables approximate to their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

Operating leases As lessee Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the period of lease.

As lessor Operating lease rental income arising from leased assets is recognised in the income statement on a straight line basis over the period of the lease. Financial statements 68 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

Accounting Policies

Finance leases As lessee Assets held under finance leases are capitalised as PP&E and depreciated over the shorter of the lease term and the asset’s useful life. The capital element of the future lease obligation is recorded as a liability, with the interest element charged to the income statement over the period of the lease so as to produce a constant rate of charge on the capital outstanding.

As lessor Finance lease rental income arising from leased assets is recognised in the income statement so as to produce a constant rate of return on the net cash investment. Amounts receivable under finance leases represent the outstanding amounts due under these agreements less amounts allocated to future periods.

Retirement benefit liabilities The Group operates a defined benefit scheme and a number of defined contribution schemes. The liability recognised in respect of the defined benefit scheme represents the present value of the defined benefit obligations less the fair value of the scheme assets. The assets of this scheme are held in separate trustee administered funds.

The defined benefit scheme’s assets are measured using market values. Pension scheme liabilities are measured annually by an independent actuary using the projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The increase in the present value of the liabilities of the Group’s defined benefit scheme expected to arise from employee service in the period is charged to operating profit. The expected return on the scheme assets and the increase during the period in the present value of the scheme’s liabilities arising from the passage of time are included in finance income/expense. Actuarial gains and losses are recognised in the statement of recognised income and expense in full in the period in which they occur. The defined benefit scheme’s net assets or net liabilities are recognised in full and presented on the face of the balance sheet.

The Group’s contributions to defined contribution schemes are charged to the income statement in the period to which the contributions relate.

Provisions Provision is made for the estimated liability on all products and services still under warranty, including claims already received, based on past experience. Other provisions are recognised where the Group is deemed to have a legal or constructive obligation, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate of the obligation can be made. Where amounts provided are payable after more than one year the estimated liability is discounted using an appropriate rate of interest.

Share based charges relating to employee share schemes The Group has a number of employee share schemes:-

(i) Share options granted under Executive Share Option Schemes (‘ESOS’) are granted at market value. A charge is booked to the income statement as an employee benefit expense for the fair value of share options expected to be exercised, accrued over the vesting period. The corresponding credit is taken to retained earnings. The fair value is calculated using an option pricing model.

(ii) Share options granted under the Long Term Retention Plan (‘LTRP’) are granted at par value. The charge to the income statement for LTRP shares is also calculated using an option pricing model and, as with ESOS grants, the fair value of the share options expected to be exercised is accrued over the vesting period. The corresponding credit is also taken to retained earnings.

(iii) The Group has a Long Term Incentive Scheme (‘LTIS’) and a Long Term Incentive Plan (‘LTIP’) for directors and key senior executives. Participants are awarded shares dependent on the achievement of certain performance targets. The charge to the income statement for shares awarded under the LTIS and LTIP is based on the fair value of those shares at the grant date, spread over the vesting period. The corresponding credit is taken to retained earnings. For those awards that have a market related performance measure, the fair value of the market related element is calculated using a Monte Carlo simulation model.

Proceeds received on the exercise of share options are credited to share capital and share premium.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 69

Notes to the financial statements for the year to 31 December 2008

Share capital John Wood Group PLC has one class of ordinary shares and these are classified as equity. Dividends on ordinary shares are not recognised as a liability or charged to equity until they have been approved by shareholders.

The Group is deemed to have control of the assets, liabilities, income and costs of its employee share ownership trusts (‘ESOP trusts’). They have therefore been consolidated in the financial statements of the Group. Shares acquired by and disposed of by the ESOP trusts are recorded at cost. The cost of shares held by the ESOP trusts is deducted from shareholders’ equity.

Segmental reporting

The Group’s primary reporting segments are its three operating divisions, namely Engineering & Production Facilities, Well Support and Gas At a glance Turbine Services. The Group measures the operating performance of these segments using ‘EBITDA’ (Earnings before interest, tax, depreciation and amortisation) and ‘EBITA’ (Earnings before interest, tax and amortisation).

Engineering & Production Facilities offers a wide range of engineering services to the upstream, midstream, downstream and industrial sectors. These include conceptual studies, engineering, project and construction management and control system upgrades. It also offers life of field support to producing assets through brownfield engineering and modifications, production enhancement, operations management, maintenance management and abandonment services.

Well Support provides solutions, products and services to enhance production rates and efficiency from oil and gas reservoirs.

Gas Turbine Services is an independent provider of integrated maintenance solutions and repair and overhaul services for industrial gas turbines

used for power generation, compression and transmission in the oil and gas and power generation industries. Operational review

Disclosure of impact of new and future accounting standards (a) Interpretations effective and relevant in 2008 The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2008: IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’ IFRIC 11, ‘IFRS 2 – Group and treasury share transactions’

(b) Interpretations effective in 2008 but not relevant The following interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2008 but are not relevant to the Group’s operations: • IFRIC 12, ‘Service concession arrangements’; and • IFRIC 13, ‘Customer loyalty programmes’. Governance

(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group The following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods, but the Group has not early adopted them: • IAS 23 (amendment), ‘Borrowing costs’ (effective from 1 January 2009) • IAS 1 (revised), ‘Presentation of financial statements’ (effective from 1 January 2009) • IFRS 2 (amendment), ‘Share-based payment’ (effective from 1 January 2009) • IAS 32 (amendment), ‘Financial instruments: Presentation’, and IAS 1 (amendment), ‘Presentation of financial statements’ – ‘Puttable financial instruments and obligations arising on liquidation’ (effective from 1 January 2009) • IAS 27 (revised), ‘Consolidated and separate financial statements’ (effective from 1 July 2009) • IFRS 3 (revised), ‘Business combinations’ (applies to accounting periods beginning on or after 1 July 2009). This standard will

impact on any acquisitions the Group undertakes from 1 January 2010. Financial statements • IFRS 5 (amendment), ‘Non-current assets held-for-sale and discontinued operations’, (and consequential amendment to IFRS 1, ‘First-time adoption’) (effective from 1 July 2009) • IAS 28 (amendment), ‘Investments in associates’ (and consequential amendments to IAS 32, ‘Financial Instruments: Presentation’, and IFRS 7, ‘Financial instruments: Disclosures’) (effective from 1 January 2009) • IAS 36 (amendment), ‘Impairment of assets’ (effective from 1 January 2009) • IAS 38 (amendment), ‘Intangible assets’ (effective from 1 January 2009) • IAS 19 (amendment), ‘Employee benefits’ (effective from 1 January 2009) • IAS 39 (amendment), ‘Financial instruments: Recognition and measurement’ (effective from 1 January 2009) • IFRS 8 ‘Operating Segments’ (effective from 1 January 2009)

It is not anticipated that the application of these standards and amendments will have any material impact on the Group financial statements. 70 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

1 Segmental reporting

Primary reporting format – business segments

Revenue EBITDA (1) EBITA (1) Operating profit Year ended 31 Dec Year ended 31 Dec Year ended 31 Dec Year ended 31 Dec 2008 2007 2008 2007 2008 2007 2008 2007 $m $m $m $m $m $m $m $m

Engineering & Production Facilities 3,244.7 2,582.8 336.7 229.3 316.1 214.5 297.9 209.1 Well Support 1,008.6 862.1 135.8 113.0 105.0 87.1 104.9 87.0 Gas Turbine Services 956.6 955.7 89.6 82.5 72.6 64.3 66.0 44.1 Central costs (4) – – (47.6) (44.8) (48.7) (45.5) (48.8) (45.5)

5,209.9 4,400.6 514.5 380.0 445.0 320.4 420.0 294.7

Gas Turbine Services – to be disposed (2) 33.2 32.1 (3.1) (1.3) (4.0) (2.0) (4.2) (9.5)

Total 5,243.1 4,432.7 511.4 378.7 441.0 318.4 415.8 285.2

Finance income 6.0 7.4 Finance expense (37.7) (32.7)

Profit before taxation 384.1 259.9

Taxation (128.7) (91.0)

Profit for the year 255.4 168.9

Notes 1 EBITDA represents operating profit of $415.8m (2007 : $285.2m) before profit on disposal of interest in joint venture of $nil (2007 : $3.6m), impairment and restructuring charges of $nil (2007 : $26.2m), depreciation of $70.4m (2007 : $60.3m) and amortisation of $25.2m (2007 : $10.6m). EBITA represents EBITDA less depreciation. EBITA and EBITDA are provided as they are units of measurement used by the Group in the management of its business. 2 The Gas Turbine Services business to be disposed is an Aero engine overhaul company which the Group has decided to divest. 3 Revenue arising from sales between segments is not material. 4 Central costs include the costs of certain management personnel in both the UK and the US, along with an element of Group infrastructure costs.

Segment assets and liabilities

Engineering Gas Turbine & Production Gas Turbine Services – to Facilities Well Support Services be disposed Unallocated Total At 31 December 2008 $m $m $m $m $m $m Segment assets 1,184.6 663.1 778.1 26.7 149.6 2,802.1 Segment liabilities 619.9 226.7 228.1 4.3 576.1 1,655.1

At 31 December 2007 Segment assets 1,057.6 586.5 645.2 32.9 148.3 2,470.5 Segment liabilities 590.3 181.6 233.8 7.5 471.4 1,484.6

Unallocated assets and liabilities includes income tax, deferred tax and cash and borrowings where this relates to the financing of the Group’s operations.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 71

Notes to the financial statements for the year to 31 December 2008

1 Segmental Reporting (continued)

Other segment items

Gas Turbine Engineering Gas Services & Production Well Turbine – to be Facilities Support Services disposed Unallocated Total 2008 $m $m $m $m $m $m

Capital expenditure At a glance - Property plant and equipment 20.3 43.7 18.6 1.0 2.6 86.2 - Intangible assets 12.8 0.1 5.3 – 0.9 19.1 Non-cash expense - Depreciation 20.6 30.8 17.0 0.9 1.1 70.4 - Amortisation of other intangible assets 18.2 0.1 6.6 0.2 0.1 25.2

2007 $m $m $m $m $m $m Capital expenditure - Property plant and equipment 21.4 43.0 14.9 2.5 0.3 82.1 - Intangible assets 4.8 – 7.0 – – 11.8 Operational review Non-cash expense/(income) - Depreciation 14.8 25.9 18.2 0.7 0.7 60.3 - Amortisation of other intangible assets 6.5 0.1 3.7 0.3 – 10.6 - Profit on disposal of interest in joint venture (3.6) – – – – (3.6) - Impairment and restructuring charges 2.5 – 15.3 7.2 – 25.0

The cash impact of the impairment and restructuring charges in 2007 was $1.2m and related to the charge in the Gas Turbine Services division.

Secondary format – geographical segments Governance Revenue Segment assets Capital expenditure 2008 2007 2008 2007 2008 2007 $m $m $m $m $m $m Europe 1,480.4 1,324.0 713.8 546.2 16.9 17.1 North America 2,345.1 1,950.6 1,333.1 1,270.0 56.7 50.0 Rest of the World 1,417.6 1,158.1 755.2 654.3 31.7 26.8 5,243.1 4,432.7 2,802.1 2,470.5 105.3 93.9

Revenue by geographical segment is based on the geographical location of the customer. Segment assets and capital expenditure is based on the location of the relevant Group business. Financial statements

2008 2007 $m $m Revenue by category is as follows: Sale of goods 688.6 643.4 Rendering of services 4,554.5 3,789.3 5,243.1 4,432.7 72 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

2 Finance expense/(income)

2008 2007 $m $m

Interest payable on bank borrowings 33.7 31.3 Interest relating to discounting of deferred consideration 4.0 1.4

Finance expense 37.7 32.7

Interest receivable on short term deposits (4.6) (5.8) Other interest income (note 30) (1.4) (1.6)

Finance income (6.0) (7.4)

Finance expense – net 31.7 25.3

3 Profit before taxation

2008 2007 $m $m

The following items have been charged/(credited) in arriving at profit before taxation:

Employee benefits expense (note 29) 1,982.5 1,618.0 Cost of inventory recognised as an expense (included in cost of sales) 518.1 413.8 Impairment of inventory 11.7 19.0 Depreciation of property plant and equipment 70.4 60.3 Amortisation of other intangible assets 25.2 10.6 Gain on disposal of property plant and equipment (4.6) (1.2) Other operating lease rentals payable: - Plant and machinery 27.4 23.3 - Property 55.8 46.1 Foreign exchange gains (21.7) (3.9) (Gain)/loss on fair value of unhedged derivative financial instruments (3.8) 0.7

Services provided by the Group’s auditor and network firms

During the year the Group obtained the following services from its auditor and network firms at costs as detailed below:

2008 2007 $m $m

Audit services - Fees payable for audit of parent company and consolidated accounts 1.0 0.9 - Audit of Group companies pursuant to legislation 1.7 1.4 Non-audit services Fees payable to the Group’s auditor and its network firms for other services - Tax services 0.1 0.3 - Other services 0.1 0.1

2.9 2.7

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 73

Notes to the financial statements for the year to 31 December 2008

4 Profit on disposal of interest in joint venture

2008 2007 $m $m

Profit on disposal of interest in joint venture – 3.6

In July 2007, the Group disposed of its shareholding in one of its joint ventures in the Engineering & Production Facilities division. A gain of At a glance $3.6m was booked in respect of this transaction and tax of $1.1m was provided.

5 Impairment and restructuring charges

2008 2007 $m $m

Impairment and restructuring charges – 26.2

In 2007, the Group recorded impairment and restructuring charges of $16.5m in the Gas Turbine Services division in respect of rationalisation of businesses and facilities, severance costs and impairment of property plant and equipment. In addition, an impairment charge of $7.2m Operational review was booked in the Gas Turbine Services division – to be disposed in respect of property plant and equipment and other intangible assets. The Group also impaired goodwill of $2.5m in the Engineering & Production Facilities division. The 2007 tax charge (see note 6) included a tax credit of $4.6m in relation to the impairment and restructuring charges.

6 Taxation

2008 2007 $m $m Current tax - Current year 134.7 115.8 Governance - Adjustment in respect of prior years (4.4) (8.4)

130.3 107.4 Deferred tax Relating to origination and reversal of temporary differences (1.6) (16.4)

Total tax charge 128.7 91.0

2008 2007

Tax on items (credited)/charged to equity $m $m Financial statements

Deferred tax movement on retirement benefit liabilities (5.2) 0.8 Current tax credit on exchange movements offset in reserves – (0.3) Current tax relating to share option schemes (6.2) –

Total (credited)/charged to equity (11.4) 0.5

74 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

6 Taxation (continued)

Tax is calculated at the rates prevailing in the respective jurisdictions in which the Group operates. The expected rate is the weighted average rate taking into account the Group’s profits in these jurisdictions. The expected rate has decreased in 2008 due to the change in profitability of the Group’s subsidiaries in their respective jurisdictions. The tax charge for the year is lower (2007 : lower) than the expected tax charge due to the following factors:

2008 2007 $m $m

Profit before taxation 384.1 259.9

Profit before tax at expected rate of 34.1% (2007: 35.3%) 131.0 91.7 Effects of: Adjustments in respect of prior years (3.2) (8.4) Non-recognition of losses and other attributes 4.4 1.9 Other permanent differences (3.5) 5.8

Total tax charge 128.7 91.0

7 Dividends

2008 2007 $m $m Dividends on equity shares Final dividend paid - year ended 31 December 2007 : 5.0 cents (2007: 3.5 cents) per share 25.6 17.6 Interim dividend paid - year ended 31 December 2008 : 2.8 cents (2007: 2.0 cents) per share 14.5 10.0

40.1 27.6

The directors are proposing a final dividend in respect of the financial year ended 31 December 2008 of 6.2 cents per share. The final dividend will be paid on 18 May 2009 to shareholders who are on the register of members on 17 April 2009. The financial statements do not reflect the final dividend, the payment of which will result in an estimated $32.0m reduction in shareholders’ funds.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 75

Notes to the financial statements for the year to 31 December 2008

8 Earnings per share

2008 2007 Earnings Earnings attributable attributable to equity Number Earnings to equity Number Earnings shareholders of shares per share shareholders of shares per share $m (millions) (cents) $m (millions) (cents) At a glance Basic 251.6 507.6 49.6 165.0 500.6 33.0

Effect of dilutive ordinary shares – 15.7 (1.5) – 19.2 (1.3)

Diluted 251.6 523.3 48.1 165.0 519.8 31.7

Amortisation, net of tax 20.9 – 4.0 7.7 – 1.5 Profit on disposal of interest in joint venture, net of tax – – – (2.5) – (0.5) Impairment and restructuring charges, net of tax – – – 21.6 – 4.2

Adjusted diluted 272.5 523.3 52.1 191.8 519.8 36.9 Operational review

Adjusted basic 272.5 507.6 53.7 191.8 500.6 38.3

The calculation of basic earnings per share for the year ended 31 December 2008 is based on the earnings attributable to equity shareholders divided by the weighted average number of ordinary shares in issue during the year excluding shares held by the Group’s employee share ownership trusts. For the calculation of diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potentially dilutive ordinary shares. The Group has two types of dilutive ordinary shares – share options granted to employees under Executive Share Option Schemes and the Long Term Retention Plan; and shares issuable under the Group’s Long Term Incentive Scheme and Long Term Incentive Plan. Adjusted basic and adjusted diluted earnings per share is disclosed to show the results excluding the impact of amortisation, impairment and restructuring charges and profit on disposal of interest in joint venture, net of tax. Governance Financial statements 76 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

9 Goodwill and other intangible assets

Computer Goodwill software Other Total $m $m $m $m Cost At 1 January 2008 516.8 36.0 70.5 623.3 Exchange movements (41.6) (6.6) (9.0) (57.2) Additions – 15.9 3.2 19.1 Acquisitions 110.0 0.2 18.3 128.5 Disposals – (2.7) (0.6) (3.3) Disposal of businesses (11.0) – – (11.0) Reclassification as assets held for sale (5.2) (0.3) – (5.5) Reclassification from current assets – 3.7 – 3.7 At 31 December 2008 569.0 46.2 82.4 697.6

Aggregate amortisation and impairment At 1 January 2008 2.9 23.3 21.0 47.2 Exchange movements – (4.3) (3.1) (7.4) Amortisation charge for the year 0.7 8.2 16.3 25.2 Disposals – (2.3) (0.6) (2.9) Reclassification as assets held for sale – (0.2) – (0.2) Reclassification from current assets – 3.5 – 3.5 At 31 December 2008 3.6 28.2 33.6 65.4 Net book value at 31 December 2008 565.4 18.0 48.8 632.2

Cost At 1 January 2007 355.7 29.1 32.8 417.6 Exchange movements 14.8 0.5 3.3 18.6 Additions – 6.7 5.1 11.8 Acquisitions 146.5 0.5 28.7 175.7 Reclassification from property plant and equipment (0.2) (0.8) (0.2) (1.2) Reclassification from current assets – – 0.8 0.8 At 31 December 2007 516.8 36.0 70.5 623.3

Aggregate amortisation and impairment At 1 January 2007 0.4 18.3 13.4 32.1 Exchange movements – 0.3 0.6 0.9 Amortisation charge for the year – 5.3 5.3 10.6 Impairment charge for the year 2.5 – 1.9 4.4 Disposals – (0.6) (0.2) (0.8) At 31 December 2007 2.9 23.3 21.0 47.2 Net book value at 31 December 2007 513.9 12.7 49.5 576.1

In accordance with IAS 36 ‘Impairment of assets’, goodwill was tested for impairment during the year. The impairment tests were carried out on a Cash Generating Unit (‘CGU’) basis using the 2009-10 budgets. Cash flows for 2011-13 are assumed to grow at a rate of 5% per annum and subsequent cash flows have been assumed to grow at 3% per annum for a further 15 years. In total, a 20 year period has been used for the impairment tests reflecting the expected long term growth in the market. The cash flows have been discounted using a pre-tax discount rate of 10%. The value in use has been compared to the net book value of goodwill for each CGU and no impairment write down is required.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 77

Notes to the financial statements for the year to 31 December 2008

9 Goodwill and other intangible assets (continued)

A sensitivity analysis has been performed in order to assess the impact of reasonable possible changes in the key assumptions due to the current economic environment. This analysis did not identify any impaired CGUs.

The impairment charge for 2007 is included in the ‘impairment and restructuring charges’ line in the income statement.

The carrying amounts of goodwill by division are: Engineering & Production Facilities $453.4m (2007 : $392.0m), Gas Turbine Services $78.5m (2007 : $88.4m) and Well Support $33.5m (2007 : $33.5m). At 31 December 2008, the carrying amounts of goodwill attributable to the principal

CGUs within the Engineering & Production Facilities division are Mustang $148.7m, IMV $132.0m, Production Facilities Americas $71.5m and At a glance Subsea & Pipeline $57.3m.

The other heading in the above table includes development costs, licences and customer contracts and relationships arising on acquisitions. Development costs with a net book value of $10.7m (2007 : $11.6m) are internally generated intangible assets.

10 Property plant and equipment

Land and Land and buildings – buildings – Long leasehold Short Plant and and freehold leasehold equipment Total $m $m $m $m Operational review Cost At 1 January 2008 60.9 23.1 505.2 589.2 Exchange movements (5.2) (1.8) (30.3) (37.3) Additions 7.5 4.4 74.3 86.2 Acquisitions 2.4 – 3.2 5.6 Disposals (2.5) – (28.1) (30.6) Disposal of businesses (0.7) – (8.8) (9.5) Reclassification as assets held for sale (0.3) (0.8) (13.8) (14.9) Reclassification from/(to) current assets 0.7 – (7.6) (6.9) Governance At 31 December 2008 62.8 24.9 494.1 581.8

Accumulated depreciation and impairment At 1 January 2008 26.2 11.7 279.0 316.9 Exchange movements (2.1) (0.2) (19.7) (22.0) Charge for the year 3.8 1.8 64.8 70.4 Disposals (0.5) – (23.4) (23.9) Disposal of businesses (0.7) – (5.2) (5.9) Reclassification as assets held for sale (0.1) (0.2) (8.1) (8.4) Financial statements Reclassification to current assets – – (8.3) (8.3)

At 31 December 2008 26.6 13.1 279.1 318.8

Net book value at 31 December 2008 36.2 11.8 215.0 263.0 78 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

10 Property plant and equipment (continued)

Land and Land and buildings – buildings – Long leasehold Short Plant and and freehold leasehold equipment Total $m $m $m $m Cost At 1 January 2007 53.3 18.3 443.7 515.3 Exchange movements 1.5 0.3 6.2 8.0 Additions 6.6 2.4 73.1 82.1 Acquisitions 0.2 2.4 2.8 5.4 Disposals (0.7) (0.3) (18.3) (19.3) Disposal of interest in joint venture – – (0.8) (0.8) Reclassification as current assets – – (1.5) (1.5)

At 31 December 2007 60.9 23.1 505.2 589.2

Accumulated depreciation and impairment At 1 January 2007 21.1 10.6 235.7 267.4 Exchange movements 0.3 0.1 3.1 3.5 Charge for the year 3.3 1.2 55.8 60.3 Impairment 1.8 – 7.7 9.5 Disposals (0.3) (0.2) (15.8) (16.3) Disposal of interest in joint venture – – (0.3) (0.3) Reclassification as current assets – – (7.2) (7.2)

At 31 December 2007 26.2 11.7 279.0 316.9

Net book value at 31 December 2007 34.7 11.4 226.2 272.3

Plant and equipment includes assets held for lease to customers under operating leases of $36.8m (2007: $40.0m). Additions during the year amounted to $4.5m (2007 : $9.7m) and depreciation totalled $14.6m (2007 : $13.2m). The gross cost of these assets at 31 December 2008 is $61.8m (2007 : $62.0m) and aggregate depreciation is $25.0m (2007 : $22.0m).

Impairment of property plant and equipment in 2007 was included in the ‘impairment and restructuring charges’ line in the income statement (see note 5).

Property plant and equipment includes assets in the course of construction of $4.7m (2007 : $12.3m).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 79

Notes to the financial statements for the year to 31 December 2008

11 Joint ventures

In relation to the Group’s interests in joint ventures, its share of assets, liabilities, income and expenses is shown below.

2008 2007 $m $m

Non-current assets 44.3 53.5

Current assets 248.3 222.7 At a glance Current liabilities (169.6) (139.5) Non-current liabilities (6.3) (15.3)

Net assets 116.7 121.4

Income 471.0 422.8 Expenses (422.4) (379.8)

Profit before tax 48.6 43.0 Tax (12.1) (11.9) Operational review

Share of post tax results from joint ventures 36.5 31.1

The joint ventures have no significant contingent liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities in relation to its interest in the joint ventures other than the bank guarantees described in note 32. The name and principal activity of the most significant joint ventures is disclosed in note 35.

12 Inventories

2008 2007

$m $m Governance

Materials 60.7 71.5 Work in progress 137.3 130.7 Finished goods and goods for resale 393.4 337.0

591.4 539.2

13 Trade and other receivables

2008 2007 Financial statements $m $m

Trade receivables 936.9 799.7 Less: provision for impairment of trade receivables (62.4) (44.2)

Trade receivables – net 874.5 755.5 Amounts recoverable on contracts 14.2 14.9 Prepayments and accrued income 81.8 59.5 Other receivables 63.7 65.0

1,034.2 894.9 80 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

13 Trade and other receivables (continued)

The Group’s trade receivables balance is analysed by division below:-

Trade Trade Receivables – Provision for Receivables – Receivable Gross impairment Net days 31 December 2008 $m $m $m

Engineering & Production Facilities 550.3 (18.6) 531.7 51 Well Support 196.6 (32.0) 164.6 52 Gas Turbine Services 190.0 (11.8) 178.2 50

Total Group 936.9 (62.4) 874.5 52

31 December 2007

Engineering & Production Facilities 462.7 (9.3) 453.4 55 Well Support 165.5 (27.5) 138.0 54 Gas Turbine Services 171.5 (7.4) 164.1 42

Total Group 799.7 (44.2) 755.5 53

Receivable days are calculated by allocating the closing trade receivables balance to current and prior period revenue including sales taxes. A receivable days calculation of 52 indicates that closing trade receivables represent the most recent 52 days of revenue. A provision for the impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the original receivables. The change in the economic environment has contributed to the increase in the provision for impairment during the year.

The ageing of the provision for impairment of trade receivables is as follows:

2008 2007 $m $m

Up to 3 months 18.6 6.1 Over 3 months 43.8 38.1

62.4 44.2

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 81

Notes to the financial statements for the year to 31 December 2008

13 Trade and other receivables (continued)

The movement on the provision for impairment of trade receivables by division is as follows:

Engineering & Production Gas Turbine 2008 Facilities Well Support Services Total $m $m $m $m

At 1 January 9.3 27.5 7.4 44.2 At a glance Exchange movements (1.1) (0.1) (0.3) (1.5) Charge to income statement 10.4 4.6 4.7 19.7

At 31 December 18.6 32.0 11.8 62.4

2007

At 1 January 7.0 11.1 5.5 23.6 Exchange movements 0.5 0.1 - 0.6 Charge to income statement 1.8 16.3 1.9 20.0 Operational review

At 31 December 9.3 27.5 7.4 44.2

The charge to the income statement is included in administrative expenses. The change in the economic environment during the year has contributed to the increase in the provision for impairment of trade receivables.

Non-trade receivables do not contain impaired assets.

Included within gross trade receivables of $936.9m above (2007 : $799.7m) are receivables of $221.3m (2007: $199.6m) which were past due but not impaired. These relate to customers for whom there is no recent history or expectation of default. The ageing analysis of these trade receivables is as follows: Governance 2008 2007 $m $m

Up to 3 months 203.6 174.6 Over 3 months 17.7 25.0

221.3 199.6 Financial statements 82 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

14 Cash and cash equivalents

2008 2007 $m $m

Cash at bank and in hand 149.6 98.8 Short-term bank deposits 26.5 18.3

176.1 117.1

The effective interest rate on short-term deposits was 1.9% (2007 : 6.2%) and these deposits have an average maturity of 32 days (2007 : 12 days).

At 31 December 2008 the Group held $10.5m of cash (2007: $10.7m) as security for standby letters of credit issued by the Group’s insurance captive in relation to its reinsurance liabilities.

15 Trade and other payables

2008 2007 $m $m

Trade payables 310.1 325.0 Other tax and social security payable 61.7 50.7 Accruals and deferred income 544.2 454.6 Deferred consideration 9.3 17.7 Other payables 40.0 43.6

965.3 891.6

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 83

Notes to the financial statements for the year to 31 December 2008

16 Borrowings

2008 2007 $m $m

Bank loans and overdrafts due within one year or on demand

Unsecured 34.2 45.1 At a glance

Non-current bank loans

Unsecured 390.7 349.9

Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the country in which the borrowing is incurred.

The effective interest rates on the Group’s borrowings at the balance sheet date were as follows:

2008 2007

% % Operational review

US Dollar 4.68 5.35 Sterling 4.41 6.40 Euro 3.37 5.08 Canadian Dollar 3.07 5.26

The carrying amounts of the Group’s borrowings are denominated in the following currencies:

2008 2007 $m $m Governance

US Dollar 115.4 116.0 Sterling 81.5 78.6 Euro 71.9 21.9 Canadian Dollar 140.0 151.5 Other 16.1 27.0

424.9 395.0

The Group is required to issue trade finance instruments to certain customers. These include tender bonds, performance bonds, retention bonds and advance payment bonds. The Group has also issued standby letters of credit as security for local bank facilities. At 31 December Financial statements 2008 the Group’s bank facilities relating to the issue of bonds, guarantees and letters of credit amounted to $236.0m (2007: $257.7m). At 31 December 2008, these facilities were 65% utilised (2007: 66%). 84 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

16 Borrowings (continued)

Borrowing facilities

The Group has the following undrawn borrowing facilities available at 31 December.

2008 2007 $m $m

Expiring within one year 42.8 38.1 Expiring between one and two years 566.4 - Expiring in more than two years but not more than five years 22.8 436.3

632.0 474.4

All undrawn borrowing facilities are floating rate facilities. The facilities expiring within one year are annual facilities subject to review at various dates during 2009. The financial covenants applicable to the bilateral borrowing facilities are the ratio of net debt to EBITDA, which must not exceed 3.5:1, and the interest cover ratio, which must not be less than 3.5:1. The measurement of the Group’s performance against these covenants is provided in note 18 under the capital risk heading. In February 2009, the Group renewed its bilateral borrowing facilities for a further 3 years. The bank facilities have been arranged to finance the Group’s activities.

17 Other non-current liabilities

2008 2007 $m $m

Deferred consideration 112.8 85.4 Other payables 9.1 9.9

121.9 95.3

Deferred consideration represents amounts payable on acquisitions made by the Group and is expected to be paid over the next six years.

18 Financial instruments

The Group’s activities give rise to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management strategy is to hedge exposures wherever practicable in order to minimise any potential adverse impact on the Group’s financial performance.

Risk management is carried out by the Group Treasury department in line with the Group’s Treasury policies. Group Treasury together with the Group’s business units identify, evaluate and where appropriate, hedge financial risks. The Group’s Treasury policies cover specific areas, such as foreign exchange risk, interest rate risk, use of derivative financial instruments and investment of excess cash.

Where the Board considers that a material element of the Group’s profits and net assets are exposed to a country in which there is significant geo- political uncertainty a report is prepared for the Board and a strategy agreed to ensure that the risk is minimised.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 85

Notes to the financial statements for the year to 31 December 2008

18 Financial instruments (continued)

(a) Market risk

(i) Foreign exchange risk

The Group is exposed to foreign exchange risk arising from various currencies. The Group also has a number of subsidiary companies whose revenue and expenses are denominated in currencies other than the US dollar. In order to protect the Group’s balance sheet from movements in exchange rates, wherever practicable, the Group finances its net investment in non US dollar subsidiaries primarily by means of borrowings denominated in the appropriate currency. Other strategies, including the payment of dividends, are used to minimise the amount of net assets At a glance exposed to foreign currency revaluation.

Some of the sales of the Group’s businesses are to customers in overseas locations. Where possible, the Group’s policy is to eliminate all significant currency exposures on sales at the time of the transaction by using financial instruments such as forward currency contracts. Changes in the forward contract fair values are booked through the income statement.

The Group carefully monitors the economic and political situation in the countries in which it operates to ensure appropriate action is taken to minimise any foreign currency exposure.

The Group’s main foreign exchange risk relates to movements in the sterling/US dollar exchange rate. Movements in the sterling/US dollar rate impact the translation of sterling profit earned in the UK and the translation of sterling denominated net assets. Operational review If the average sterling/US dollar rate had been 10% higher during 2008, post-tax profit for the year would have been $9.8m higher (2007: $2.4m higher). If the average sterling/US dollar rate had been 10% lower during 2008, post-tax profit for the year would have been $7.6m lower (2007: $5.4m lower). If the closing sterling/US dollar rate was 10% higher or lower at 31 December 2008, exchange differences in equity would have been $11.5m (2007: $10.9m) higher or lower respectively.

(ii) Interest rate risk

The Group finances its operations through a mixture of retained profits and bank borrowings. The Group borrows in the desired currencies at floating rates of interest and then uses interest rate swaps into fixed rates to generate the desired interest profile and to manage the Group’s exposure to interest rate fluctuations. The Group’s long-term policy is to maintain approximately 50% of its borrowings at fixed rates of interest. At 31 December 2008, 39% (2007 : 44%) of the Group’s borrowings were at fixed rates after taking account of interest rate swaps.

The Group is also exposed to interest rate risk on cash held on deposit. The Group’s policy is to maximise the return on cash deposits whilst Governance ensuring that cash is deposited with a financial institution with a credit rating of ‘AA’ or better, where possible. If average interest rates had been 1% higher or lower during 2008, post-tax profit for the year would have been $2.0m higher or lower respectively (2007: $1.5m).

(iii) Price risk

The Group is not exposed to any significant price risk in relation to its financial instruments. Financial statements 86 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

18 Financial instruments (continued)

(b) Credit risk

The Group’s credit risk primarily relates to its trade receivables. The Group’s operations comprise three divisions, Engineering & Production Facilities, Well Support and Gas Turbine Services each made up of a number of businesses. Responsibility for managing credit risks lies within the businesses with support being provided by Group and divisional management where appropriate.

A customer evaluation is typically obtained from an appropriate credit rating agency. Where required, appropriate trade finance instruments such as letters of credit, bonds, guarantees and credit insurance will be used to manage credit risk.

The Group’s major customers are typically large companies which have strong credit ratings assigned by international credit rating agencies. Where a customer does not have sufficiently strong credit ratings, alternative forms of security such as the trade finance instruments referred to above may be obtained. The Group has a broad customer base and management believe that no further credit risk provision is required in excess of the provision for impairment of trade receivables. The Group has increased its focus on credit risk and credit management in light of the current economic environment and appropriate measures have been implemented to reduce the risk profile where possible. The change in the economic environment has contributed to the increase in the provision for impaired receivables as disclosed in note 13.

Management review trade receivables across the Group based on receivable days calculations to assess performance. There is significant management focus on receivables that are overdue. A table showing trade receivables and receivable days by division is provided in note 13. Receivable days calculations are not provided on non-trade receivables as management do not believe that this information is relevant.

The Group also has credit risk in relation to cash held on deposit. The Group’s policy is to deposit cash at institutions with a ‘AA’ rating or better where possible. 41% of cash held on deposit at 31 December 2008 (2007 : 100%) was held with such institutions, the reduced percentage being due, in part, to the downgrading in ratings of certain institutions.

With regard to liquidity, the Group’s policy is to ensure continuity of funding. At 31 December 2008, 97% (2007 : 93%) of the Group’s borrowing facilities (excluding joint ventures) were due to mature in more than one year. In February 2009, the Group renewed its bilateral borrowing facilities for a further 3 years. Based on the current outlook the Group has sufficient funding in place to meet its future obligations.

(d) Capital risk

The Group seeks to maintain an optimal capital structure. The Group monitors its capital structure on the basis of its gearing ratio, interest cover and the ratio of net debt to EBITDA.

Gearing is calculated by dividing net debt by shareholders’ funds. Gearing at 31 December 2008 was 22% (2007: 29%).

Interest cover is calculated by dividing EBITA by net interest expense. Interest cover for the year to 31 December 2008 was 13.9 times (2007: 12.6 times).

The ratio of net debt to EBITDA at 31 December 2008 was 0.5 (2007: 0.7).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 87

Notes to the financial statements for the year to 31 December 2008

18 Financial instruments (continued)

The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period from the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between 1 Between 2 Over 5 1 year and 2 years and 5 years years At 31 December 2008 $m $m $m $m At a glance Borrowings 34.2 390.7 – – Derivative financial instruments 4.1 4.8 3.3 – Trade and other payables 965.3 – – – Other non-current liabilities – 45.5 43.7 32.7

The Group’s bilateral borrowing facilities which are included in the ‘between 1 and 2 years’ category above were renewed for a further 3 years in February 2009.

At 31 December 2007

Borrowings 45.1 – 349.9 – Operational review Derivative financial instruments 1.5 0.4 0.8 – Trade and other payables 891.6 – – – Other non-current liabilities – 15.0 54.5 25.8

The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between 1 Between 2 Over 5 1 year and 2 years and 5 years years At 31 December 2008 $m $m $m $m Governance

Forward foreign exchange contracts Outflow 124.3 0.8 – – Inflow 126.6 0.9 – –

Interest rate swaps Outflow 6.3 7.7 3.1 – Inflow 5.6 4.4 1.7 –

At 31 December 2007 Financial statements Forward foreign exchange contracts Outflow 162.5 1.2 – – Inflow 163.1 1.2 – –

Interest rate swaps Outflow 4.7 2.0 14.8 – Inflow 3.0 1.7 14.0 –

All of the Group’s forward foreign exchange contracts are categorised as held for trading. All interest rate swaps are categorised as cash flow hedges. 88 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

18 Financial instruments (continued)

Fair value of non-derivative financial assets and financial liabilities

The fair value of short-term borrowings, trade and other payables, trade and other receivables, short-term deposits and cash at bank and in hand approximates to the carrying amount because of the short maturity of interest rates in respect of these instruments. Long-term borrowings are generally rolled over for periods of three months or less and as a result, book value and fair value are considered to be the same.

2008 2007 Book Value Fair Value Book Value Fair Value $m $m $m $m Fair value of long-term borrowings Long-term borrowings (note 16) 390.7 390.7 349.9 349.9

Fair value of other financial assets and financial liabilities Primary financial instruments held or issued to finance the Group’s operations:

Trade and other receivables (note 13) 1,034.2 1,034.2 894.9 894.9 Cash at bank and in hand (note 14) 149.6 149.6 98.8 98.8 Short-term deposits (note 14) 26.5 26.5 18.3 18.3 Trade and other payables (note 15) 965.3 965.3 891.6 891.6 Short-term borrowings (note 16) 34.2 34.2 45.1 45.1 Other non-current liabilities (note 17) 121.9 121.9 95.3 95.3

Derivative financial instruments

The fair value of the Group’s derivative financial instruments at the balance sheet date were as follows:

2008 2007 Assets Liabilities Assets Liabilities $m $m $m $m

Interest rate swaps – cash flow hedges – 8.4 0.8 1.6 Forward foreign exchange contracts 2.1 3.8 0.7 0.5 Currency options 5.1 – – 0.6

Total 7.2 12.2 1.5 2.7 Less non-current portion: Interest rate swaps – cash flow hedges – 8.1 0.8 1.2

Current portion 7.2 4.1 0.7 1.5

Trading derivatives are classified as a current asset or liability. The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability if the maturity of the hedged item is less than 12 months.

There was no ineffectiveness recorded in the income statement from fair value hedges in the current or preceding period. There was no ineffectiveness recorded in the income statement from cash flow hedges in the current or preceding period. There was no ineffectiveness recorded in the income statement from net investment in foreign entity hedges in the current or preceding period.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 89

Notes to the financial statements for the year to 31 December 2008

18 Financial instruments (continued)

The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet.

(a) Forward foreign exchange contracts

The notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2008 was $120.5m (2007: $163.7m).

(b) Interest rate swaps At a glance

The notional principal amount of the Group’s outstanding interest rate swap contracts at 31 December 2008 was $166.5m (2007 : $175.0m).

At 31 December 2008 the fixed interest rates excluding margin varied from 4.3% to 5.2% (2007 : 2.7% to 5.2%) and the floating rate was 2.9% also excluding margin (2007 : 5.3%). The Group interest rate swaps are for periods of up to 5 years and they expire between 2009 and 2013. The bank has a break option on one $25m 5 year swap. This option is exercisable on a quarterly basis.

The fair value gains and losses relating to the interest rate swaps which are deferred in equity at 31 December 2008 will reverse in the income statement over the term of the swaps.

The table below shows the Group’s foreign currency borrowings which it has designated as a hedge of subsidiary company net assets. The fair value of the borrowings at 31 December 2008 was $206.1m (2007 : $158.4m). Foreign exchange gains of $46.8m (2007 : losses $7.6m) on translation of the borrowings into US dollars have been recognised in the currency translation reserve.

2008 2007 Foreign % of foreign Foreign % of foreign currency currency net currency currency net amount $m assets hedged amount $m assets hedged

£55.0m 79.1 42% £35.0m 69.7 42% Governance C$67.0m 54.3 63% C$63.0m 63.8 67% A$5.6m 3.9 25% A$5.6m 4.9 34% €49.5m 68.8 97% €13.7m 20.0 74%

206.1 158.4 Financial statements 90 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

19 Provisions

Warranty provisions Other Total $m $m $m

At 1 January 2008 17.7 19.0 36.7 Exchange movements (1.4) (0.1) (1.5) Charge to income statement 12.0 10.7 22.7 Payments during the year (9.6) (3.3) (12.9)

At 31 December 2008 18.7 26.3 45.0

Warranty provisions

These provisions are recognised in respect of guarantees provided in the normal course of business relating to contract performance. They are based on previous claims history and it is expected that most of these costs will be incurred over the next two years.

Other provisions

At 31 December 2008, other provisions of $26.3m (2007 : $19.0m) have been recognised. This amount includes provisions for future losses on onerous contracts, a provision for non-recoverable indirect taxes and a provision for remedial work at one of our facilities. It is expected that the majority of the costs in relation to these provisions will be incurred over the next two years.

20 Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using the tax rate applicable to the territory in which the asset or liability has arisen. Deferred tax in relation to UK companies is provided at 28% (2007: 28%).

The movement on the deferred tax account is shown below:

2008 2007 $m $m

At 1 January (45.5) (29.3) Exchange movements 5.0 (0.6) Credit to income statement (1.6) (16.4) Deferred tax relating to retirement benefit liabilities (5.2) 0.8 Reclassification as liabilities held for sale (1.5) –

At 31 December (48.8) (45.5)

Deferred tax is presented in the financial statements as follows:

Deferred tax assets (53.3) (51.1) Deferred tax liabilities 4.5 5.6

(48.8) (45.5)

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted, tax of $22.1m (2007 : $20.0m) would be payable.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 91

Notes to the financial statements for the year to 31 December 2008

20 Deferred tax (continued)

The Group has unrecognised tax losses of $68.8m (2007 : $39.8m) to carry forward against future taxable income.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. The deferred tax balances are analysed below:-

Accelerated Short term

tax Share based timing At a glance depreciation Pension charges differences Total $m $m $m $m $m

Deferred tax assets 9.2 (6.5) (8.0) (48.0) (53.3) Deferred tax liabilities – – – 4.5 4.5

Net deferred tax liability/(asset) 9.2 (6.5) (8.0) (43.5) (48.8)

21 Share based charges Operational review The Group currently has four share schemes that give rise to share based charges. These are the Executive Share Option Scheme (‘ESOS’), the Long Term Retention Plan (‘LTRP’), the Long Term Incentive Scheme (‘LTIS’) and the Long Term Incentive Plan (‘LTIP’). The LTIP replaced the LTIS on 1 January 2008. Details of each of the schemes are given in the Directors’ Remuneration Report and in note 22.

The charge in the Group income statement in 2008 for these schemes amounted to $13.3m (2007 : $13.7m)

The assumptions made in arriving at the charge for each scheme are detailed below:

ESOS and LTRP

At 31 December 2008 there were 750 employees (2007 : 618) participating in these schemes. For the purposes of calculating the fair value of the share options, a Black-Scholes option pricing model has been used. Based on past experience, it has been assumed that options will be exercised, on average, six months after the earliest exercise date, which is four years after grant date, and there will be a lapse rate of between Governance 15% and 20%. The share price volatility used in the calculation of 35%-40% is based on the actual volatility of the Group’s shares since IPO as well as that of comparable companies. The risk free rate of return of 4.0%-5.2% is based on the implied yield available on zero coupon gilts with a term remaining equal to the expected lifetime of the options at the date of grant. A dividend yield of approximately 1.0% has been used in the calculations.

The fair value of options granted under the ESOS during the year ranged from £1.17 to £1.23 (2007 : £0.91). The fair value of options granted under the LTRP during the year ranged from £3.36 to £3.62 (2007 : £2.54 to £3.92). The weighted average remaining contractual life of share options at 31 December 2008 is 5.3 years (2007: 5.7 years).

LTIS/LTIP

The share based charge for the LTIS was calculated using a fair value of £1.40. The charge for the LTIP was calculated using a fair value of Financial statements £4.12. The charge for market related performance targets has been calculated using a Monte Carlo simulation model using similar assumptions to the ESOS and LTRP calculations. 92 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

22 Share capital

2008 2007 Authorised $m $m

1 720,000,000 (2007: 720,000,000) ordinary shares of 3 ⁄3 pence 34.9 34.9

2008 2007 Issued and fully paid shares $m shares $m

1 Ordinary shares of 3 ⁄3 pence each At 1 January 524,336,720 26.0 516,632,930 25.5 Issue of new shares – – 203,790 – Allocation of new shares to employee share trusts 3,500,000 0.2 7,500,000 0.5

At 31 December 527,836,720 26.2 524,336,720 26.0

John Wood Group PLC is a public limited company, incorporated and domiciled in Scotland.

Executive Share Option Schemes

The following options to subscribe for new or existing shares were outstanding at 31 December:

Number of ordinary Year of shares under option Exercise price Grant 2008 2007 (per share) Exercise period

1 2000 213,750 326,250 17 ⁄3p 2005-2010 1 2001 230,000 315,000 93 ⁄3p 2006-2011 1 2001 824,380 1,260,070 83 ⁄3p 2006-2011 1 2002 228,000 327,000 83 ⁄3p 2007-2012 2003 1,004,715 1,645,413 158p 2007-2013 2004 3,008,942 6,269,517 128½p 2008-2014 2005 1,762,917 1,807,917 145p 2009-2015 2006 887,000 919,667 265¼p 2010-2016 2007 1,186,417 1,215,500 268½p 2011-2017 2008 1,439,500 – 381¾p 2012-2018 1 2008 210,208 – 354 ⁄3p 2012-2018 10,995,829 14,086,334

Details of the Group’s Executive Share Option Schemes are set out in the Directors’ Remuneration Report. Share options are granted at an exercise price equal to the average mid-market price of the shares on the three days prior to the date of grant.

5,509,787 options (2007 : 3,873,733) were exercisable at 31 December 2008. 1,692,500 options were granted during the year, 4,553,985 options were exercised during the year and 229,020 options lapsed during the year. The weighted average share price for ESOS options exercised during the year was £4.27 (2007 : £3.27).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 93

Notes to the financial statements for the year to 31 December 2008

22 Share capital (continued)

Options granted to directors under the executive share option scheme are subject to performance criteria as set out in the Directors’ Remuneration Report. There are no performance criteria under this scheme for options granted to employees.

Long Term Retention Plan

The following options granted under the Group’s LTRP were outstanding at 31 December:

At a glance Number of ordinary Year of shares under option Exercise price Grant 2008 2007 (per share) Exercise period

1 2003 – 390,520 3 ⁄3p 2007-2008 1 2004 31,250 81,250 3 ⁄3p 2008-2009 1 2005 121,502 121,502 3 ⁄3p 2009-2010 1 2006 1,262,393 1,317,104 3 ⁄3p 2010-2011 1 2007 1,649,063 1,684,938 3 ⁄3p 2011-2012 1 2008 1,780,944 – 3 ⁄3p 2012-2013

4,845,152 3,595,314 Operational review

1 Options are granted under the Group’s LTRP at par value (3 ⁄3 pence per share). There are no performance criteria attached to the exercise of options under the LTRP, however no LTRP options are granted unless the Group achieves a minimum level of EPS growth of RPI plus 3%. The level of grant varies between RPI plus 3% and RPI plus 10%. 1,806,944 LTRP options were granted during the year, 442,615 LTRP options were exercised during the year and 114,491 LTRP options lapsed during the year. The weighted average share price for LTRP options exercised during the year was £4.22 (2007 : £3.59). Further details on the LTRP are provided in the Directors’ Remuneration Report.

Long Term Incentive Scheme/Long Term Incentive Plan

The Group’s Long Term Incentive Scheme (‘LTIS’) which had been in place since 2005 was replaced by the Long Term Incentive Plan (‘LTIP’) in 2008. Under these Schemes, the executive directors (but not the Chairman) and other key senior executives are awarded shares dependent upon the achievement of performance targets established by the Remuneration Committee. The performance measures for the LTIP are EBITA, Governance return on capital employed, total shareholder return and adjusted earnings per share. The total shareholder return and adjusted earnings per share performance measures apply to the executive directors only. The LTIP awards are in the form of shares and restricted shares. 20% of any award earned over the three year performance cycle are deferred for a further two years in the form of forfeitable restricted shares. At 31 December 2008, 7,035,534 shares were potentially issuable under these schemes. Further details of the LTIS and LTIP are provided in the Directors’ Remuneration Report.

23 Share premium

2008 2007 $m $m Financial statements At 1 January 303.6 294.1 Arising on issue of new shares, net of expenses – 0.2 Allocation of shares to employee share trusts 8.2 9.3

At 31 December 311.8 303.6

Expenses of share issue and allocation amounted to $0.1m (2007 : $0.1m). 94 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

24 Retained earnings

2008 2007 $m $m

At 1 January 555.9 397.4 Profit for the year attributable to equity shareholders 251.6 165.0 Dividends paid (40.1) (27.6) Credit relating to share based charges 13.3 13.7 Actuarial (loss)/gain on retirement benefit liabilities (18.7) 2.6 Movement in deferred tax relating to retirement benefit liabilities 5.2 (0.8) Shares allocated to ESOP trusts (8.4) (9.8) Shares purchased by ESOP trusts (34.2) - Shares disposed of by ESOP trusts 10.5 16.2 Tax credit relating to share option schemes 6.2 - Exchange movements in respect of shares held by ESOP trusts 18.9 (0.8)

At 31 December 760.2 555.9

Retained earnings are stated after deducting the investment in own shares held by ESOP trusts. Investment in own shares represents the cost of 21,884,982 (2007 : 19,518,329) of the company’s ordinary shares totalling $54.0m (2007 : $40.8m). No options have been granted over shares held by the ESOP trusts (2007 : nil).

Shares acquired by the ESOP trusts are purchased in the open market using funds provided by John Wood Group PLC to meet obligations under the Employee Share Option Schemes, the LTRP, the LTIS and the LTIP. During 2008, 3,500,000 shares at a value of $8.4m were allocated to the trusts in order to satisfy the exercise of share options. 5,000,000 shares were purchased during the year on the open market at a cost of $34.2m. 4,996,600 shares were issued during the year to satisfy the exercise of share options at a value of $10.5m. In addition, 1,136,747 shares were issued during the year to satisfy share awards under the LTIS. Exchange adjustments of $18.9m arose during the year relating to the retranslation of the investment in own shares from sterling to US dollars. The costs of funding and administering the trusts are charged to the income statement in the period to which they relate. The market value of the shares at 31 December 2008 was $59.2m (2007 : $168.2m) based on the closing share price of £1.88 (2007 : £4.33). The ESOP trusts have waived their rights to receipt of dividends except in relation to those shares used to meet obligations under the LTIS.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 95

Notes to the financial statements for the year to 31 December 2008

25 Other reserves

Capital Currency reduction translation Hedging reserve reserve reserve Total $m $m $m $m

At 1 January 2007 88.1 (5.0) 2.2 85.3 Exchange movements on retranslation of foreign currency net assets – 7.0 – 7.0

Tax on foreign exchange losses recorded in reserves – 0.3 – 0.3 At a glance Cash flow hedges – – (3.5) (3.5)

At 31 December 2007 88.1 2.3 (1.3) 89.1

Exchange movements on retranslation of foreign currency net assets – (45.9) – (45.9) Cash flow hedges – – (7.5) (7.5)

At 31 December 2008 88.1 (43.6) (8.8) 35.7 Operational review A capital redemption reserve was created on the conversion of convertible redeemable preference shares immediately prior to the Initial Public Offering in June 2002. The capital redemption reserve was converted to a capital reduction reserve in December 2002 and is part of distributable reserves.

The currency translation reserve relates to the retranslation of foreign currency net assets on consolidation. This was reset to zero on transition to IFRS at 1 January 2004.

The hedging reserve relates to the accounting for derivative financial instruments under IAS 39. Fair value gains and losses in respect of effective cash flow hedges are recognised in the hedging reserve.

26 Minority interest Governance

2008 2007 $m $m

At 1 January 11.3 7.7 Exchange movements (0.2) – Acquisition of minority interest – (0.2) Investment by minority shareholders 0.1 1.4 Share of profit for the year 3.8 3.9 Dividends paid (1.9) (1.5) Financial statements At 31 December 13.1 11.3 96 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

27 Cash generated from operations

2008 2007 $m $m

Reconciliation of operating profit to cash generated from operations:

Operating profit 415.8 285.2

Adjustments for: Depreciation 70.4 60.3 Gain on disposal of property plant and equipment (4.6) (1.2) Amortisation of other intangible assets 25.2 10.6 Share based charges 13.3 13.7 Impairment and restructuring charges – non-cash impact – 25.0 Profit on disposal of interest in joint venture – (3.6) Increase in provisions 9.8 12.8

Changes in working capital (excluding effect of acquisition and disposal of subsidiaries) Increase in inventories (104.1) (112.7) Increase in receivables (298.3) (74.4) Increase in payables 221.4 131.8

Exchange movements 4.6 (8.5)

Cash generated from operations 353.5 339.0

Analysis of net debt

At 1 January Exchange At 31 December 2008 Cash flow movements 2008 $m $m $m $m

Cash and cash equivalents 117.1 80.5 (21.5) 176.1 Short term borrowings (45.1) – 10.9 (34.2) Long term borrowings (349.9) (105.7) 64.9 (390.7)

Net debt (277.9) (25.2) 54.3 (248.8)

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 97

Notes to the financial statements for the year to 31 December 2008

28 Acquisitions and disposals

Acquisitions

The assets and liabilities acquired in respect of the acquisitions during the year were as follows: Fair value $m

Property plant and equipment 5.6 At a glance Other intangible assets 18.5 Trade and other receivables 17.7 Cash 7.8 Trade and other payables (11.1)

Net assets acquired 38.5

Goodwill 88.4

Consideration 126.9 Operational review

Consideration satisfied by: Cash 91.8 Deferred consideration 35.1

126.9

The Group has used acquisition accounting for the purchases and, in accordance with the Group’s accounting policies, the goodwill arising on consolidation of $88.4m has been capitalised. The amounts disclosed in the table above relate to the acquisitions of Producers Assistance Corporation (‘PAC’), Netlink Inspection Pty (‘Netlink’), Marine & Offshore Group (‘M&O’) and Marine Computation Services Group (‘MCS’), which were acquired during the year. The fair values in the above table are equivalent to the book values with the exception of goodwill and other Governance intangible assets. The acquisitions are not considered to be material to the Group on an individual basis and therefore have been aggregated in the table above.

PAC, acquired in January 2008, provides technical operations and maintenance support services to the US onshore oil and gas industry. Netlink, acquired in May 2008, provides customised software products and services relating to asset integrity management. M&O, acquired in August 2008, provides safety and emergency response training services to the international offshore, maritime and mining industries. MCS, acquired in September 2008, is a global subsea engineering consultancy and provides riser and mooring design services and advanced engineering and software solutions to the subsea industry. The Group acquired 100% of the share capital of all four companies acquired during the year.

The acquisitions during the year provide the Group with access to new markets and strengthen the Group’s capabilities in certain areas. The acquired companies will be in a position to access the Group’s wider client base and use the Group’s existing relationships to further grow and develop their businesses. These factors contribute to the goodwill recognised by the Group on the acquisitions. Financial statements Deferred consideration payments of $26.8m were made during the year in respect of acquisitions made in prior periods. Payments during the year and changes to previous estimates of deferred consideration have resulted in additional goodwill of $21.6m. Costs of $1.4m were incurred during the year in respect of acquisitions made in 2007. 98 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

28 Acquisitions and disposals (continued)

The outflow of cash and cash equivalents on the acquisition made during the year is analysed as follows:

Cash consideration 91.8 Cash acquired (7.8) 84.0 Costs incurred in relation to acquisitions in prior period 1.4 Cash outflow 85.4

The results of the Group, as if the above acquisitions had been made at the beginning of period, would have been as follows:

Revenue 5,272.5 Profit for the year 258.8

The acquired businesses earned cumulative revenue of $29.4m from the beginning of the year to the acquisition date. From the date of acquisition to 31 December 2008, the acquisitions contributed $65.6m to revenue and $3.7m to profit for the year.

Disposals

Details of the assets and liabilities disposed of during the year were as follows:

Goodwill and other intangible assets 11.0 Property plant and equipment 3.6 Inventories 11.0 Trade and other receivables 20.1 Cash and cash equivalents 6.8 Borrowings (0.6) Trade and other payables (18.3)

Net assets disposed of 33.6

Net proceeds received 38.7 Provision for disposal costs (5.1)

Profit/(loss) on disposals –

Reconciliation of net proceeds to cash inflow from disposals

Net proceeds received 38.7 Cash disposed of (6.8) Borrowings disposed of 0.6

Cash inflow from disposals 32.5

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 99

Notes to the financial statements for the year to 31 December 2008

28 Acquisitions and disposals (continued)

During 2008, the Group disposed of an Engineering & Production Facilities business in Europe, a small Gas Turbine Services business in North America and partly disposed of a Well Support business in South America.

In January 2009, the Group disposed of two small businesses in its Gas Turbine Services division. The assets and liabilities relating to these businesses have been reclassified as assets/liabilities held for sale in the Group balance sheet. Initial proceeds received in January 2009 amounted to $11.6m. In addition, the Group acquired various assets and liabilities as part of the transaction. It is not anticipated that there will be a material gain or loss on the disposals. At a glance

29 Employees and directors

Employee benefits expense 2008 2007 $m $m

Wages and salaries 1,797.9 1,467.1 Social security costs 137.5 111.4 Pension costs – defined benefit schemes (note 30) 6.7 6.5 Pension costs – defined contribution schemes (note 30) 40.4 33.0

1,982.5 1,618.0 Operational review

Average monthly number of employees (including executive directors) 2008 2007 No. No. By geographical area: Europe 5,239 4,739 North America 10,035 9,001 Rest of the World 7,495 6,964 22,769 20,704

The average number of employees for 2007 has been restated to exclude contractors which were included in the figure originally reported. Governance

Key management compensation 2008 2007 $m $m

Salaries and short-term employee benefits 20.8 19.3 Amounts receivable under long-term incentive schemes 14.8 12.2 Post employment benefits 1.1 1.1 Share based charges 6.8 7.6 43.5 40.2

The key management figures given above include executive directors. Financial statements

2008 2007 Directors $m $m

Aggregate emoluments 6.7 6.6 Aggregate amounts receivable under long-term incentive schemes 1.8 1.8 Aggregate gains made on the exercise of share options 0.6 2.3 Company contributions to defined contribution pension schemes – 0.1 9.1 10.8 100 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

29 Employees and directors (continued)

One director (2007: one) has retirement benefits accruing under a defined contribution pension scheme. Retirement benefits are accruing to six (2007: six) directors under the company’s defined benefit pension scheme. Further details of directors emoluments are provided in the Directors’ Remuneration Report.

30 Retirement benefit liabilities

One of the Group’s pension schemes in the UK, the John Wood Group PLC Retirement Benefits Scheme, is a defined benefit scheme, which is contracted out of the State Scheme. The assets of the scheme are held separately from those of the Group, being invested with independent investment companies in trustee administered funds.

The most recent actuarial valuation of the scheme was carried out at 5 April 2007 by a professionally qualified actuary. On 5 April 2007 there was a change to the benefits provided under the scheme. From that date benefits are calculated on a Career Averaged Revalued Earnings (“CARE”) basis.

The principal assumptions made by the actuaries at the balance sheet date were:

2008 2007 % %

Rate of increase in pensionable salaries 4.90 5.40 Rate of increase in pensions in payment and deferred pensions 2.90 3.40 Discount rate 6.20 5.60 Expected return on scheme assets 7.06 7.00

The expected return on scheme assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.

The mortality assumptions used by the actuary take account of standard actuarial tables compiled from UK wide statistics relating to occupational pension schemes. At 31 December 2008 the actuary has used the PXA92 (YOB) with medium cohort improvements and a further improvements reserve of 3% of liabilities.

The amounts recognised in the balance sheet are determined as follows:

2008 2007 $m $m

Present value of funded obligations (124.7) (187.5) Fair value of scheme assets 101.6 176.2

Net liabilities (23.1) (11.3)

The major categories of scheme assets as a percentage of total scheme assets are as follows:

2008 2007 % %

Equity securities 82.7 85.4 Corporate bonds 8.4 2.6 Gilts 8.7 11.2 Cash 0.2 0.8

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 101

Notes to the financial statements for the year to 31 December 2008

30 Retirement benefit liabilities (continued)

The amounts recognised in the income statement are as follows:

2008 2007 $m $m

Current service cost included within employee benefits expense 6.7 6.5 At a glance Interest cost 10.1 8.9 Expected return on scheme assets (11.5) (10.5)

Total included within finance income (1.4) (1.6)

The employee benefits expense is included within administrative expenses in the income statement.

Changes in the present value of the defined benefit liability are as follows:

2008 2007 $m $m Operational review

Present value of funded obligations at 1 January 187.5 165.3 Current service cost 6.7 6.5 Interest cost 10.1 8.9 Actuarial (gains)/losses (25.6) 7.9 Scheme participants contributions 3.0 3.3 Benefits paid (8.0) (2.1) Plan curtailment – (5.0) Exchange movements (49.0) 2.7

Present value of funded obligations at 31 December 124.7 187.5 Governance

Changes in the fair value of scheme assets are as follows:

2008 2007 $m $m

Fair value of scheme assets at 1 January 176.2 140.4 Expected return on scheme assets 11.5 10.5 Contributions 7.8 14.6 Benefits paid (8.0) (2.1) Financial statements Actuarial (losses)/gains (44.3) 10.5 Exchange movements (41.6) 2.3

Fair value of scheme assets at 31 December 101.6 176.2 102 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

30 Retirement benefit liabilities (continued)

Analysis of the movement in the balance sheet liability:

2008 2007 $m $m

At 1 January 11.3 24.9 Current service cost 6.7 6.5 Finance income (1.4) (1.6) Contributions (4.8) (11.3) Plan curtailment – (5.0) Net actuarial losses/(gains) recognised in the year 18.7 (2.6) Exchange movements (7.4) 0.4 At 31 December 23.1 11.3

2007 contributions include a one–off payment of $4m made by the Group in April 2007 as part of the CARE transition arrangements.

Cumulative actuarial (gains) and losses recognised in equity:

2008 2007 $m $m

At 1 January 24.4 27.0 Net actuarial losses/(gains) recognised in the year 18.7 (2.6) At 31 December 43.1 24.4

The actual return on scheme assets was $(32.8)m (2007 : $21.0m).

History of experience gains and losses:

2008 2007 2006 2005 2004 Difference between the expected and actual return on scheme assets : (Loss)/gain ($m) (44.3) 10.5 2.9 12.3 4.9 Percentage of scheme assets 44% 6% 2% 12% 6%

Experience gains/(losses) on scheme liabilities: Gain/(loss) ($m) 25.6 (7.9) 5.6 (14.8) (9.7) Percentage of the present value of the scheme liabilities 21% 4% 3% 11% 8%

Present value of scheme liabilities ($m) 124.7 187.5 165.3 137.0 122.2 Fair value of scheme assets ($m) 101.6 176.2 140.4 103.7 88.3 Deficit ($m) 23.1 11.3 24.9 33.3 33.9

The contributions expected to be paid during the financial year ending 31 December 2009 amount to $4.3m.

Pension costs for defined contribution schemes are as follows:

2008 2007 $m $m

Defined contribution schemes 40.4 33.0

Contributions outstanding at 31 December 2008 in respect of defined contribution schemes amounted to $21.1m (2007 : $15.0m).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 103

Notes to the financial statements for the year to 31 December 2008

31 Operating lease commitments – minimum lease payments

2008 2007 Vehicles, Vehicles, plant and plant and Property equipment Property equipment $m $m $m $m Amounts payable under non-cancellable operating leases due:

Within one year 48.1 7.6 40.4 13.3 At a glance Later than one year and less than five years 147.8 17.4 110.9 14.5 After five years 59.7 3.8 59.3 0.7 255.6 28.8 210.6 28.5

The Group leases various offices and warehouses under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights. The Group also leases plant and machinery under non-cancellable operating lease agreements. The allocation of the property lease commitments reported for 2007 has been restated.

32 Contingent liabilities Operational review At the balance sheet date the Group had cross guarantees without limit extended to its principal bankers in respect of sums advanced to subsidiaries. At 31 December 2008, the Group has outstanding guarantees of $2.7m (2007 : $1.7m) in respect of joint venture banking arrangements.

33 Capital and other financial commitments

2008 2007 $m $m

Contracts placed for future capital expenditure not provided in the financial statements 5.9 7.1 Governance The capital expenditure above relates to property plant and equipment. There are no significant joint venture capital commitments included in the figures above.

34 Related party transactions

The following transactions were carried out with the Group’s joint ventures. These transactions comprise sales and purchases of goods and services in the ordinary course of business.

2008 2007 $m $m

Sale of goods and services to joint ventures 144.9 143.5 Financial statements Purchase of goods and services from joint ventures 55.1 16.5 Receivables from joint ventures 48.5 14.7 Payables to joint ventures 13.1 10.5

In addition to the above, the Group charged JW Holdings Limited, a company in which Sir Ian Wood has an interest, an amount of $0.1m (2007 : $0.1m) for management services provided under normal commercial terms.

Key management compensation is disclosed in note 29. 104 John Wood Group PLC Annual Report 2008

Notes to the financial statements for the year to 31 December 2008

35 Principal subsidiaries and joint ventures

The Group’s principal subsidiaries and joint ventures are listed below.

Country of Ownership Name of subsidiary or joint venture incorporation Principal activity interest % or registration

Engineering & Production Facilities:

Mustang Engineering Holdings, Inc USA 100 Alliance Wood Group Engineering L.P. USA 100 Conceptual studies, engineering, project J P Kenny Engineering Limited UK 100 and construction management and control IMV Projects Inc Canada 100 } system upgrades. Marine Computation Services Group Limited Ireland 100 Wood Group Engineering (North Sea) Limited UK 100 SIGMA 3 (North Sea) Limited UK 33.3* Brownfield engineering and modifications, Wood Group Production Services, Inc USA 100 production enhancement, operations Wood Group Colombia S.A Colombia 100 management, maintenance management Wood Group Equatorial Guinea Limited Cyprus 100 } and abandonment services. Deepwater Specialists Inc USA 100

Well Support:

Wood Group ESP, Inc. USA 100 Wood Group Products & Services SA Argentina 100 } Electric submersible pumps Wood Group ESP (Middle East) Ltd Cyprus 100 Wood Group Pressure Control, L.P. USA 100 Valves and wellhead equipment Wood Group Pressure Control Limited UK 100 } Wood Group Logging Services Inc. USA 100 Logging services

Gas Turbine Services:

Wood Group Engineering Services (Middle East) Limited Jersey 100 Rolls Wood Group (Repair & Overhauls) Limited UK 50* TransCanada Turbines Limited Canada 50* Gas turbine repair and overhaul Wood Group Field Services, Inc. USA 100 Wood Group Gas Turbine Services Limited UK 100 } Wood Group Pratt & Whitney Industrial Turbine Services, LLC USA 49* Wood Group Power Solutions, Inc. USA 100 Provision of gas turbine packages Wood Group Advanced Parts Manufacture AG Switzerland 100 Provision of gas turbine parts

The proportion of voting power held equates to the ownership interest, other than for joint ventures (marked *) which are jointly controlled.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 105

Company financial statements At a glance

Contents

Company financial statements 106 Independent auditors’ report 108 Company balance sheet 109 Notes to the company financial statements

Additional information

119 Five year summary Operational review 120 Shareholder information Governance Financial statements 106 John Wood Group PLC Annual Report 2008

Independent auditors’ report to the members of the John Wood Group PLC

We have audited the parent company financial statements of John Wood Group PLC for the year ended 31 December 2008 which comprise the Balance Sheet and the related notes. These parent company financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.

We have reported separately on the group financial statements of John Wood Group PLC for the year ended 31 December 2008.

Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the parent company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the parent company financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the parent company financial statements give a true and fair view and whether the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Report of the Directors is consistent with the parent company financial statements. The information given in the Report of the Directors includes that specific information presented in the Operational and Financial Reviews that is cross referred from the Principal Activities and Business Review section of the Report of the Directors.

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited parent company financial statements. The other information comprises the Report of the Directors, the unaudited part of the Directors’ Remuneration Report, the Chairman’s Statement and the Operational and Financial Reviews and all other information listed on the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the parent company financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the parent company financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the parent company financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the parent company financial statements and the part of the Directors’ Remuneration Report to be audited.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 107

Opinion In our opinion:

• the parent company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company’s affairs as at 31 December 2008;

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and

• the information given in the Report of the Directors is consistent with the parent company financial statements. At a glance

PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors Aberdeen 2 March 2009

Company balance sheet as at 31 December 2008

Note 2008 2008 2007 2007 $m $m $m $m Fixed assets Investments 1 398.0 379.1

Current assets Debtors 2 1,353.2 1,217.9 Financial assets – derivative financial instruments 6 5.1 0.8 Cash at bank and in hand 3 5.2 1,363.5 13.7 1,232.4

Creditors: amounts falling due within one year Creditors 4 (562.3) (477.9) Financial liabilities – derivative financial instruments 6 (8.7) (571.0) (2.3) (480.2) Net current assets 792.5 752.2 Total assets less current liabilities 1,190.5 1,131.3 Creditors: amounts falling due after one year 5 (388.5) (339.9) 802.0 791.4 Capital and reserves Share capital 7 26.2 26.0 Share premium 8 311.8 303.6 Capital reduction reserve 9 88.1 88.1 Retained earnings 10 373.9 364.2 Other reserves 11 2.0 9.5 Equity shareholders’ funds 12 802.0 791.4

The financial statements on pages 108 to 118 were approved by the board of directors on 2 March 2009.

Allister G Langlands, Director Alan G Semple, Director

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 109

Notes to the company financial statements for the year to 31 December 2008

Accounting Policies

The financial statements are prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable Accounting Standards in the United Kingdom. A summary of the principal accounting policies which have been consistently applied, is set out below.

Reporting currency The Company’s transactions are primarily US dollar denominated and the principal functional currency is the US dollar.

The following sterling to US dollar exchange rates have been used in the preparation of these accounts:- At a glance

2008 2007 Average rate £1 = $ 1.8484 1.9995 Closing rate £1 = $ 1.4378 1.9906

Investments Investments in subsidiary undertakings and joint ventures are included in the balance sheet of the Company at cost less any provision for impairment.

Impairment Operational review The Company performs impairment reviews in respect of fixed asset investments whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised when the recoverable amount of an asset, which is the higher of the asset’s net realisable value and its value in use, is less than its carrying amount.

Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date, with the following exceptions:-

• provision is made for gains on disposal of fixed assets that have been rolled over into replacement assets only where, at the balance sheet date, there is a commitment to dispose of the replacement assets.

• provision is made for the tax that would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the Governance balance sheet date, dividends have been declared or there is a binding commitment.

• on the basis of all available evidence deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Deferred tax is measured on a non-discounted basis at the rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Financial statements 110 John Wood Group PLC Annual Report 2008

Notes to the company financial statements for the year to 31 December 2008

Foreign currencies Transactions in foreign currencies are translated at the exchange rates ruling at the date of the transaction or, where forward contracts have been arranged, at the contractual rates. Monetary assets and liabilities denominated in foreign currencies are retranslated at the exchange rates ruling at the balance sheet dates or at a contractual rate if applicable and any exchange differences are taken to the profit and loss account.

The directors consider it appropriate to record sterling denominated equity share capital in the accounts of John Wood Group PLC at the exchange rate ruling on the date it was raised.

Financial instruments The accounting policy for financial instruments is consistent with the Group accounting policy as presented in the notes to the Group financial statements with the exception of the policy on net investment hedges which does not apply to the Company. The Company’s financial risk management policy is consistent with the Group’s financial risk management policy outlined in note 18 to the Group financial statements.

Operating leases As lessee Payments made under operating leases are charged to the profit and loss account on a straight line basis over the period of the lease.

Use of estimates The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from those estimates.

Employee share ownership trusts The Company is deemed to have control of the assets, liabilities, income and costs of its employee share ownership trusts (“ESOP trusts”). They have therefore been included in the financial statements of the Company. Under UITF 38 the cost of shares held by the ESOP trusts is deducted from shareholders’ funds.

Share based charges The Company has a number of share schemes as detailed in the Group accounting policies and notes 21 and 22 to the Group financial statements. Details relating to the calculation of share based charges are provided in note 21 to the Group financial statements. In respect of the Company the charge is shown as an increase in the Company’s investments, as the employees to which the charge relates are employed by subsidiary companies.

Disclosure of impact of new and future accounting standards The following standards and amendments to existing standards have been published and are mandatory for the Company’s accounting periods beginning on or after 1 January 2009 or later periods, but the company has not early adopted them: • FRS 8 (amendment), ‘Related party disclosures’ (effective for financial years beginning on or after 6 April 2008) • FRS 20 (amendment), ‘Share-based payment’ (effective retrospectively in annual periods beginning on or after 1 January 2009) • FRS 25 (amendment), ‘Financial instruments: Presentation - Puttable financial instruments and obligations arising on liquidation’ (effective for accounting periods beginning on or after 1 January 2010. Early adoption is permitted for accounting periods beginning on or after 1 January 2009)

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 111

Notes to the company financial statements for the year to 31 December 2008

1 Investments

Subsidiaries $m Cost At 1 January 2008 445.9 Exchange movements (33.9) Additions 52.8 At a glance At 31 December 2008 464.8 Amounts provided At 1 January 2008 and 31 December 2008 66.8 Net book value At 31 December 2008 398.0 At 31 December 2007 379.1

2 Debtors

2008 2007 Operational review $m $m

Amounts owed by group undertakings 1,347.4 1,206.6 Amounts owed by joint ventures – 3.7 Prepayments and accrued income 0.8 0.9 Group relief receivable 5.0 6.7

1,353.2 1,217.9

As at 31 December 2008, amounts owed by group undertakings of $10.3m (2007: $14.3m) were impaired. These amounts relate to balances Governance due from non-trading group companies from whom there is no expectation of payment. The ageing of these amounts is as follows:

2008 2007 $m $m Over 3 months 10.3 14.3

The movement on the provision for impairment is as follows:

2008 2007 $m $m Financial statements At 1 January 14.3 14.0 Exchange movements (4.0) 0.3

At 31 December 10.3 14.3

The creation and release of provision for impaired balances is charged to the profit and loss account. The company had no outstanding balances that were past due but not impaired at either 31 December 2008 or 31 December 2007. The other classes within debtors do not contain impaired assets. 112 John Wood Group PLC Annual Report 2008

Notes to the company financial statements for the year to 31 December 2008

3 Cash at bank and in hand

2008 2007 $m $m Cash at bank and in hand 5.2 13.3 Short-term bank deposits – 0.4

5.2 13.7

The company had no cash on deposit at 31 December 2008. The effective interest rate on short-term deposits at 31 December 2007 was 5.5% and these deposits had an average maturity of 3 days.

4 Creditors

2008 2007 $m $m Bank overdrafts 104.3 50.4 Amounts due to group undertakings 449.9 421.8 Amounts due to joint ventures 6.4 3.0 Corporation tax payable 0.2 - Accruals and deferred income 1.5 2.7 562.3 477.9

5 Creditors amounts falling due after more than one year

2008 2007 $m $m Bank loans 388.5 339.9

Bank loans are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the country in which the borrowing is incurred.

The effective interest rates on the Company’s borrowings at the balance sheet date were as follows:

2008 2007 % % US Dollar 5.11 5.33 Sterling 4.41 6.40 Euro 3.37 5.08 Canadian Dollar 3.06 5.22

The carrying amounts of the Company’s borrowings are denominated in the following currencies:

2008 2007 $m $m US Dollar 100.0 100.0 Sterling 79.1 69.7 Euro 71.9 21.7 Canadian Dollar 132.4 141.9 Other 5.1 6.6 388.5 339.9

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 113

Notes to the company financial statements for the year to 31 December 2008

6 Financial instruments

Financial risk factors

The Company’s activities give rise to a variety of financial risks: market risk (including currency risk and cash flow interest rate risk), credit risk and liquidity risk. The Company’s overall risk management strategy is to hedge exposures wherever practicable in order to minimise any potential adverse impact on the Company’s financial performance.

Risk management is carried out by the Group Treasury department in line with the Group’s Treasury policies which are approved by the Board of

Directors. Group Treasury identify, evaluate and where appropriate hedge financial risks. The Group Treasury policies cover specific areas, such At a glance as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess cash.

(a) Market risk

(i) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from various currencies. In order to protect the Company’s balance sheet from movements in exchange rates, the Company finances its net investment in non US dollar subsidiaries primarily by means of borrowings denominated in the appropriate currency.

Where possible the Company’s policy is to eliminate all significant currency exposures at the time of the transaction by using financial

instruments such as forward currency contracts. Changes in the forward contract fair values are booked through the profit and loss account. Operational review

(ii) Interest rate risk

The Company finances its operations through a mixture of retained profits and bank borrowings. The company borrows in the desired currencies at floating rates of interest and then uses interest rate swaps as cash flow hedges to generate the desired interest profile and to manage the Company’s exposure to interest rate fluctuations. At 31 December 2008, approximately 43% (2007: 50%) of the Company’s borrowings were at fixed rates after taking account of interest rate swaps.

The Company is also exposed to interest rate risk on cash held on deposit. The Company’s policy is to maximise the return on cash deposits whilst ensuring that cash is deposited with a financial institution with a credit rating of ‘AA’ or better.

(iii) Price risk Governance

The Company is not exposed to any significant price risk in relation to its financial instruments.

(b) Credit risk

The Company’s credit risk primarily relates to its inter-company loans and inter-company receivables. Management believe that no further risk provision is required in excess of the current provision for impairment.

The Company also has credit risk in relation to cash balances or cash held on deposit. The Company’s policy is to deposit cash at institutions with an ‘AA’ rating or better where possible. There was no cash held on deposit at 31 December 2008. Financial statements 114 John Wood Group PLC Annual Report 2008

Notes to the company financial statements for the year to 31 December 2008

6 Financial instruments (continued)

With regard to liquidity, the Group’s policy is to ensure continuity of funding. At 31 December 2008, 100% (2007: 100%) of the Company’s borrowing facilities were due to mature in more than one year. In February 2009, the company extended its bilateral borrowing facilities for a further 3 years. Based on the current outlook the Company has sufficient funding in place to meet its future obligations.

(d) Capital risk

The Company’s capital risk is determined by that of the Group.

The table below analyses the Company’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than 1 Between 1 Between 2 Over 5 At 31 December 2008 year and 2 years and 5 years years $m $m $m $m

Bank loans – 388.5 – – Derivative financial instruments 0.6 4.8 3.3 – Creditors 562.3 – – –

The Group’s bilateral borrowing facilities which are included in the ‘between 1 and 2 years’ category above were renewed for a further 3 years in February 2009.

At 31 December 2007

Bank loans – – 339.9 – Derivative financial instruments 1.2 0.4 0.7 – Creditors 477.9 – – –

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 115

Notes to the company financial statements for the year to 31 December 2008

6 Financial instruments (continued)

The table below analyses the Company’s derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than 1 Between 1 Between 2 Over 5 year and 2 years and 5 years years At 31 December 2008 $m $m $m $m At a glance

Forward foreign exchange contracts Outflow 51.0 – – – Inflow 50.7 – – –

Interest rate swaps Outflow 6.3 7.7 3.1 – Inflow 5.6 4.4 1.7 –

At 31 December 2007 Operational review Forward foreign exchange contracts Outflow 92.7 – – – Inflow 92.6 – – –

Interest rate swaps Outflow 4.6 2.0 14.8 – Inflow 2.9 1.7 14.0 –

All of the Company’s forward foreign exchange contracts are categorised as held for trading. All interest rate swaps are categorised as cash flow hedges. Governance Financial statements 116 John Wood Group PLC Annual Report 2008

Notes to the company financial statements for the year to 31 December 2008

6 Financial instruments (continued)

Derivative financial instruments

The book value and net fair value of the Company’s derivative financial instruments at the balance sheet date were as follows:

2008 2007 Debtor Creditor Debtor Creditor $m $m $m $m

Interest rate swaps – cash flow hedges – 8.4 0.8 1.6 Forward foreign exchange contracts – 0.3 – 0.1 Currency options 5.1 – – 0.6

Total 5.1 8.7 0.8 2.3

Trading derivatives are classified as debtors or creditors.

There was no ineffectiveness recorded in the profit and loss account arising from fair value hedges in either period. There was no ineffectiveness recorded in the profit and loss account arising from cash flow hedges in either period. There was no ineffectiveness recorded in the profit and loss account from net investment in foreign entity hedges in either period.

The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the balance sheet.

(a) Forward foreign exchange contracts

The notional principal amounts of the Company’s outstanding forward foreign exchange contracts at 31 December 2008 was $51.0m (2007: $92.7m).

(b) Interest rate swaps

The notional principal amount of the Company’s outstanding interest rate swap contracts at 31 December 2008 was $166.5m (2007: $170.0m).

At 31 December 2008 the fixed interest rates varied from 4.3% to 5.2% (2007: 3.6% to 5.2%) and the floating rate was 2.9% also excluding margin (2007: 5.3%). The interest rate swaps are for periods of 5 years and they expire between 2009 and 2013. The bank has a break option on one $25m 5 year swap. This option is exercisable on a quarterly basis.

The fair value gains and losses relating to the interest rate swaps and which are deferred in equity at 31 December will reverse in the profit and loss account over the term of the swaps.

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 117

Notes to the company financial statements for the year to 31 December 2008

7 Share capital

2008 2007 $m $m Authorised 1 720,000,000 ordinary shares of 3 ⁄3p each (2007 :720,000,000) 34.9 34.9 Allotted, called up and fully paid 1 527,836,720 ordinary shares of 3 ⁄3p each (2007 :524,336,720) 26.2 26.0 At a glance

The additional information required in relation to share capital is given in note 22 to the Group financial statements.

8 Share premium

2008 2007 $m $m At 1 January 303.6 294.1 Arising on issue of new shares – 0.2 Allocation of shares to employee share trusts 8.2 9.3 Operational review At 31 December 311.8 303.6

Expenses of share issue and allocation amounted to $0.1m (2007 : $0.1m)

9 Capital reduction reserve

2008 2007 $m $m At 1 January and 31 December 88.1 88.1 Governance A capital redemption reserve was created on the conversion of convertible redeemable preference shares immediately prior to the Initial Public Offering in June 2002. The capital redemption reserve was converted to a capital reduction reserve in December 2002 and is part of distributable reserves. Financial statements 118 John Wood Group PLC Annual Report 2008

Notes to the company financial statements for the year to 31 December 2008

10 Retained earnings

2008 2007 $m $m At 1 January 364.2 89.8 Retained profit for the year 9.6 255.1 Shares purchased by ESOP trusts (34.2) – Shares allocated to ESOP trusts (8.4) (9.8) Shares disposed of by ESOP trusts 10.5 16.2 Foreign exchange in respect of shares held by ESOP trusts 18.9 (0.8) Credit relating to share based charges 13.3 13.7 At 31 December 373.9 364.2

Retained earnings are stated after deducting the investment in own shares held by employee share trusts. Investments in own shares represents the cost of 21,884,982 (2007: 19,518,329) of the Company’s ordinary shares totalling $54.0m (2007: $40.8m).

11 Other reserves

2008 2007 $m $m At 1 January 9.5 12.8 Fair value losses (7.5) (3.3) At 31 December 2.0 9.5

12 Reconciliation of movements in shareholders’ funds

2008 2007 $m $m Profit for the financial year 49.7 282.7 Dividends (40.1) (27.6) 9.6 255.1 Issue of new shares – 0.2 Credit relating to share based charges 13.3 13.7 Fair value losses (7.5) (3.3) Shares purchased by ESOP trusts (34.2) – Shares disposed of by ESOP trusts 10.5 16.2 Foreign exchange in respect of shares held in ESOP trusts 18.9 (0.8) 10.6 281.1 Shareholders’ funds at 1 January 791.4 510.3 Shareholders’ funds at 31 December 802.0 791.4

The profit for the financial year for the Company was $49.7m (2007 : $282.7m). The directors have taken advantage of the exemption available under Section 230 of the Companies Act 1985 and not presented a profit and loss account for the Company.

The Company does not have any employees other than the directors of the Company. Details of the directors’ remuneration is provided in the Directors Remuneration Report. The profit for the financial year is stated after charging audit fees of $38,000 (2007: $43,000). Details of dividends paid and proposed are provided in note 7 to the Group financial statements. Further details of share based charges are provided in note 21 to the Group financial statements. The gain on the fair value of unhedged derivative financial instruments charged to the profit and loss account during the year was $5.4m (2007: loss $0.2m).

Energy Supporting Energy ; go online at www.woodgroup.com/annualreport2008 119

Five year summary

2008 2007 2006 2005 2004 $m $m $m $m $m Revenue 5,243.1 4,432.7 3,468.8 2,761.9 2,288.1

EBITA 441.0 318.4 215.1 149.1 117.4 Amortisation (25.2) (10.6) (7.6) (4.8) (5.6)

Non-recurring items – (22.6) – 3.7 (26.2) At a glance Net finance expense (31.7) (25.3) (23.9) (23.3) (19.4) Profit before taxation 384.1 259.9 183.6 124.7 66.2 Taxation (128.7) (91.0) (62.4) (41.1) (26.8) Profit for the year 255.4 168.9 121.2 83.6 39.4

Attributable to: Equity shareholders 251.6 165.0 120.5 80.5 37.3 Minority interest 3.8 3.9 0.7 3.1 2.1

255.4 168.9 121.2 83.6 39.4 Operational review

Shareholders’ equity 1,133.9 974.6 802.3 681.3 529.9 Net debt 248.8 277.9 257.9 245.8 354.3 Gearing ratio 21.9% 28.5% 32.1% 36.1% 66.9% Interest cover 13.9 12.6 9.0 6.4 6.1 Diluted earnings per share (cents) 48.1 31.7 23.4 16.4 7.8 Adjusted diluted earnings per share (cents) 52.1 36.9 24.5 16.6 12.9 Dividend per share (cents) 9.0 7.0 5.0 4.0 3.6 Governance Financial statements 120 John Wood Group PLC Annual Report 2008

Shareholder information

Dividends We declare our dividend in US dollars. As a result of the who have not yet arranged for their dividends to be paid direct to shareholders being mainly UK based, dividends will be paid in their Bank or Building Society account and wish to benefit from this sterling, but if you would like to receive your dividend in US dollars service should contact the Registrars at the address below. please contact the Registrars at the address below. All shareholders Sterling dividends will be translated at the closing mid-point spot will receive dividends in sterling unless requested. If you are a UK rate on 17 April 2009 as published in the Financial Times on 18 April based shareholder, the Company encourages you to have your 2009. dividends paid through the BACS (Banker’s Automated Clearing Services) system. The benefit of the BACS payment method is that Ex-dividend date 15 April 2009 the Registrars post the tax vouchers directly to the shareholders, Dividend record date 17 April 2009 whilst the dividend is credited on the payment date to the Dividend payment date 18 May 2009 shareholder’s Bank or Building Society account. UK shareholders

Annual General Meeting Officers and advisers The 2009 AGM will be held on Wednesday 13 May 2009 at 12 noon Secretary and Registered Office at The Hilton Treetops, 161 Springfield Road, Aberdeen, AB15 7AQ. I Johnson, John Wood Group PLC, John Wood House, Greenwell Road, Aberdeen AB12 3AX A separate notice convening the meeting is distributed to Tel: 01224 851000 shareholders, which includes an explanation of the items of business to be considered at the meeting. All resolutions of which notice has Stockbrokers been given will be decided on a poll. JPMorgan Cazenove Limited Credit Suisse

Auditors PricewaterhouseCoopers LLP Chartered Accountants

Shareholder enquiries Registrars If you have any queries about the administration of shareholdings, Equiniti such as change of address, change of ownership, dividend Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. payments, or lost share certificates, please contact the Registrars, Equiniti Limited, “Equiniti”. Shareholder helpline Tel: +44 121 415 7047; UK 0871 384 2649* As the Company’s share register is, by law, open to public inspection, shareholders may receive unsolicited mail from *Calls to this number are charged at 8p per minute from a BT organisations that use it as a mailing list. To limit the amount of landline. Other telephony provider costs may vary. unsolicited mail you receive write to the Mailing Preference Society, FREEPOST 22, London W1E 7EZ. Alternatively, register online at www.mpsonline.org.uk or call the MPS Registration line on 0845 703 4599.

Website Shareholder Information The company’s website at www.woodgroup com has a dedicated Investor Relations section where you can catch up on the latest news in the press release section and sign up for automatic news alerts, read the latest Annual Report as well as our financial results presentations. You can also view share price and dividend histories and trading graphs. We welcome feedback on the site. Please email your comments to [email protected]

Energy Supporting Energy 1 John Wood Group PLC Annual Report 2008 2

At a glance At a glance Our vision Our operating highlights 2008

– to extend our services and broaden our Safety cases (per million Reduce incident rate 3.3 3.9 man hours) 5 international presence

For footnotes turn to page 29.

Energy Supporting Energy www.woodgroup.com John Wood Group PLC Annual Report and Accounts 2008 John Wood Group PLC

razil 109 Notes to the company financial statements Operations & maintenance support, B

An online version of the annual report and Additional information accounts 2008 is available at 119 Five year summary www.woodgroup.com/annualreport2008 120 Shareholder information